Can anyone explain Drawdown difference

[shanmugapradeep]

Hi,

In MT4 Backtest there is always different type of drawdown and i always get confuse which one to notice.

Can anyone explain what the difference and which is main drawdown.

1. Absolute drawdown
2. Relative drawdown
3. Maximal drawdown
4. Peak drawdown

 

[Crash101]

Absolute drawdown - this is the overal amount of drawdown. If for example I had 100,000 dollar account and I went down to 90k, my absolute drawdown would be 10%. This is based on no other trades into the story such as prehaps I had a 5% winner previously and then lost 15k in my second trade.

My relative drawdown will be considering the 5% trade winner I had and therefore say I had a 7% Loss after a 5% win. The drawdown in relative to the amount that was in the account which was 105k, not 100k. It is relative to the current level of profit or loss.

There is something also to consider, is that if you have trades that are live and negative, this will add to your drawdown. This can be a reason why you may fail a prop firm challenge.

Maximal drawdown I have no idea about but hopefully this is a partial answer for you.

Crash101

 

[Enivid]

To add to @Crash101 answer, Maximal drawdown is the same as Relative drawdown but measured in the dollar terms. So, for example, if you went up to $120k, then lost $10k, you maximal drawdown is $10k, your relative drawdown is 8.33%. Normally, they are the same but just expressed differently. Sometimes, they become different because the next drawdown (e.g., from $141k to 130k) could be greater than $10k ($11k > $10k), but in percentage terms it is less than the previous relative drawdown (7.8% < 8.33%).

Peak drawdown - I am not sure, but this could be peak-to-valley drawdown, which is the distance from the highest high your balance head to the lowest low. For example, you rose to $150k, then dropped to $95k, your peak-to-valley drawdown is $55k. However, in MetaTrader this should be the same as Maximal drawdown.

 

[shanmugapradeep]

Peak drawdown - I am not sure,

In FXblue, it show peak drawdown.

• Absolute drawdown – the largest loss is below initial deposit value;
• Maximal drawdown – the largest loss of the local maximum in the deposit currency and in per cents of the deposit;
• Relative drawdown – the maximal loss in percents of the maximum equity value and its corresponding money value;