Return Over Maximum Draw Down – Code Snippet
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I coded a little snippet that can be added to the bottom of any strategy that you are back testing that returns a score for ‘Returns Over Maximum Draw Down’ and thought that I would share it here in case it is of any use to anyone.
Return Over Maximum Draw Down (RoMaD) is simply a ratio calculated by dividing the current profit by the biggest draw down that a strategy has ever seen (so the biggest all time fall in equity). This simple ratio is a good indicator of strategy quality. The higher the number the better the strategy.
In the first attached image it can be seen how RoMaD has changed over the history of the strategy and how the big drawdown in 2001 has resulted in a pretty poor score of just 1.8106. (Return is only 1.8106 times the size of the biggest draw down).
In the second attached image it can be seen that with the addition of an extra condition to close positions the RoMaD score has increased to 5.4483.
Here is the code to add to your strategies:
123456789101112131415maxstratprofit = max(maxstratprofit, strategyprofit)if longonmarket thenrunningequity = strategyprofit - ((positionprice - low) * countofposition)MaD = max(MaD, maxstratprofit - runningequity)endifif shortonmarket thenrunningequity = strategyprofit - ((high - positionprice) * abs(countofposition))MaD = max(MaD, maxstratprofit - runningequity)endifRoMaD = strategyprofit / MaDgraph RoMaDNote: I’ve just coded this and not road tested it at all so if you find any issues please let me know!
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Hey yeah good, I like it … thank you!
I’ve added to here
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be good if you could exclude the 1st trade
I think it would be preferable to keep it in there as there is always the chance that your first trade is the trade with the biggest all time draw down or is a massively profitable trade and you wouldn’t want to exclude them from the test just to make the scaling look better. At the beginning of the plot the draw down will always likely be big compared to the strategy profit or the strategy profit big compared to the draw down so we have to expect (and learn to embrace) these ugly graphs!
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How feasible is it to do some yardstick re System Drawdown vs BuyHold Drawdown and even System Return vs Buy and Hold Return?
Totally feasible – but I need to cook some dinner now so maybe tomorrow I’ll look at it if I get a chance.
It would be nice to have a whole bunch of yardstick measures/scores all in one snippet to add to a strategy code.
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Unfortunately for me ‘her indoors’ (you obviously used to watch Minder too) is a bit over a thousand odd miles away so I’m cooking my own dinner.
Yes MaD (Ma-ximum D-rawdown) is the single largest draw down recorded. The biggest single drop in equity from an equity high ever.
Here is one of your requests. This one calculates RoMaD and also calculates a RoMaD for buy and Hold which I called BuyHoldRoMaD. Obviously this BuyHoldRoMaD is calculated as a long only trade for indices but your strategy that RoMaD is calculated on can be long and short – however you wish to try to beat the market.
It then calculates the ratio which is RoMaD over BuyHoldRoMaD (RoMaDoBaHRoMaD). So if your strategy has a better RoMaD than Buy and Hold RoMaD then the ratio will be above 1. If the RoMaD is worse then its below 1. You can use this ratio to compare strategies performance or just look to see if RoMaD is above BuyHoldRoMaD . The ratio just helps quantify things with a value.
12345678910111213141516171819202122232425262728293031//RoMaDmaxstratprofit = max(maxstratprofit, strategyprofit)if longonmarket thenrunningequity = strategyprofit - ((positionprice - low) * countofposition)MaD = max(MaD, maxstratprofit - runningequity)endifif shortonmarket thenrunningequity = strategyprofit - ((high - positionprice) * abs(countofposition))MaD = max(MaD, maxstratprofit - runningequity)endifRoMaD = strategyprofit / MaD//BuyHoldRoMadbuyholdpositionsize = 1once firstprice = lowbuyandholdequity = ((high - firstprice) * buyholdpositionsize)maxbuyholdprofit = max(maxbuyholdprofit, buyandholdequity)once BuyHoldMad = high - lowBuyHoldMaD = max(BuyHoldMaD, (maxbuyholdprofit - low) * buyholdpositionsize)BuyHoldRoMaD = buyandholdequity / BuyHoldMaDRoMaDoBaHRoMaD = RoMaD / BuyHoldRoMaDgraph BuyHoldRoMaDgraph RoMaDgraph RoMaDoBaHRoMaD1 user thanked author for this post.
GraHal – your second suggestion is a little simpler to code. Return over Buy and Hold Return – or RoBaH to you!
This ratio is just the strategy return divided by the buy and hold return. Once again buy and hold is long only but the strategy can be short and long. I forgot to mention the ‘buyholdpositionsize’ variable in the last code I posted (and in this code). This is whatever your initial buy and hold opening position size is.
1234567buyholdpositionsize = 1once firstprice = lowbuyandholdequity = ((high - firstprice) * buyholdpositionsize)RoBaH = strategyprofit / buyandholdequitygraph RoBaH1 user thanked author for this post.
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