Say I am considering the entire time horizon, is max drawdown what I've drawn in blue, or what's in purple?
Likewise, how about the current drawdown for the period in black (in practice, I am asked to compute the current monthly drawdown)?
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3$\begingroup$ Max drawdown is the blue one. $\endgroup$– babelproofreaderJun 16, 2020 at 11:06
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$\begingroup$ @babelproofreader How about the current drawdown please? $\endgroup$– hartmutJun 16, 2020 at 11:08
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2 Answers
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The Max Drawdown and the Current Drawdown have already been answered.
I am not quite sure what is meant by 'the current monthly drawdown'.
Some traders have a rule that they will stop trading for the rest of the month if the 'current [calendar] month drawdown' exceeds X%. This is calculated by comparing the level at the end of the previous month to the minimum of all levels from the last day of prev month to the latest available day this month. (For example:compare May 31 to the lowest of May 31, June 1, June 2, ..., June 15). Perhaps this is what you are referring to.
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The drawdown is the peak-to-trough over a time period. So your purple line is the "current drawdown". The "max drawdown" is the largest number of all drawdowns, which is your blue line.
answered Jun 16, 2020 at 18:55