Maximum drawdown for walk forward optimization

[pandyav]

Hello,
I am trying to run walk forward optimization for an automated strategy I developed and want to understand max drawdown number reported under the results tab.

I ran walk forward optimization between 1/1/2014 to 5/31/2014 with 90 days of optimization period and 30 days of testing period. I am attaching the picture of both 'Instruments' tab and 'Walk forward' tab showing the results.

I am trying to understand the number of -864 reported under the 'Instruments' tab as Max. Drawdown. I have an Excel worksheet that I use to confirm the Max Drawdown number (also attached).

When I plug in the individual trades for both of the Walk Forward periods, I can see that Max. Drawdown numbers match (-737 and -942 for the periods of April and May) to NT results. But when I add all the trades, Max. Drawdown comes out to be -1188 after adding all the trades together. And NT is reporting the max drwadown of -864.

Any idea why the discrepancy?? I am assuming NT is reporting the Max Drawdown of all the trades, but then why the difference??

Very much appreciate your help in advance.

[NinjaTrader_PatrickH]

Hello pandyav,

Thank you for your post.

The Max. Drawdown as seen on the Instruments is a trade weighted average. You can find an example and information on weighted averages at the following link: http://www.investopedia.com/terms/w/weightedaverage.asp

Please let me know if I may be of further assistance.

[pandyav]

Awesome, thank you so much.

[GeoOrtiz]

Thank you for your post pandyav and thank you Patrick for the response. I'm trying to understand why a weighted average instead of the actual max drawdown would be more relevant in the instruments/results tab for the max drawdown on a walk forward optimization. I'm new at this, but when analyzing a strategy's performance, I want to know what the actual max drawdown was. I don't think my broker is going to take an weighted average from my account during a drawdown period. But maybe I'm missing something.

All responses are greatly appreciated.

[NinjaTrader_PatrickH]

Hello GeoOrtiz,

Thank you for your post.

You may be correct about your broker not using such a calculation. You can check with them to verify that though.

Weighting the average is a technique to give more importance to larger quantities. You can find more information on this concept at the following link: http://www.investopedia.com/terms/w/weightedaverage.asp

[GeoOrtiz]

Thank you for your response Patrick.

It has been verified, my broker will take the actual drawdown from my account not a weighted average.

In all seriousness, I understand what a weighted average is. I just don't understand why that would be in the place of the actual max drawdown.

Can anyone chime in here about what you prefer to see in the results page? Now that NT 8 is in the works, it would be of great help if we didn't have to calculate the max drawdown by hand on a walk forward optimization.

Thank you!

[NinjaTrader_PatrickH]

Hello GeoOrtiz,

Thank you for your response.

I will forward your suggestion to development.