Wealth-Lab Wiki

API ChartStyles Community Components Community Indicators IndexDefinitions Knowledge Base Misc Optimizers Pending Deletion PosSizers Providers Standard Indicators TASC Traders Tips TASCIndicators Tutorial Videos Visualizers
RSS

Navigation


Quick Search
»
Advanced Search »


Control Drawdown

RSS
This money management method allows risk-averse traders to have good control over their equity drawdowns. The idea of the technique is to not let drawdown exceed some value that a trader can tolerate. The formula is:

Position size = % Risk * (Equity – (1 – Max DD %) * Highest Equity) / initial risk per share / 100

Initial risk per share is expressed in units of volatility (e.g., 0.50 * 14-day ATR). Consequently, the initial risk taken when creating a position is equal to a fixed fraction of maximum allowed equity drawdown.

Image

Important Disclaimer: The information provided by Wealth-Lab is strictly for informational purposes and is not to be construed as advice or solicitation to buy or sell any security.  The owner of Wealth-Lab.com assumes no liability resulting from the use of the material contained herein for investment purposes. By using this web site, you agree to the terms of this disclaimer and our Terms of Use.

Used under license from FMR Corp. Copyright 2008 FMR Corp. All rights reserved.


ScrewTurn Wiki. Some of the icons created by FamFamFam.