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- Ts is the N-day exponential moving average of the series Tp

 

Maximum Drawdown

Drawdown Definitions:

Period: It is the decline from the maximum value to the minimum value of a price series during a selected period of time and it’s denoted in percent terms.

It is measured from the start of the decline until it reaches a new maximum. This method is used because a valley cannot be measured until a new maximum is established. Once a new maximum is found, then the percent change from the previous maximum until the minimum is calculated.

The maximum drawdown is the highest drawdown that ocurred in the period selected by the user.

 

period chosen by the user within which the Maximum Drawdown is to be measured

Peak: These are the points at which the value of the asset reaches a level never reached since the beginning of the Period.

Trough: It is the point (after a Peak) at which the asset's value reaches its minimum level. The bottom is always associated with a specific Peak, that is, the bottom of Peak X is the lowest point comprised in the period that begins at Peak X and ends when a new Peak is reached (the new Peak is the point at which the value of the asset exceeds the value of Peak X)

Drop: the fall between a Peak and its respective Trough is the percentage change between the value of the asset at its Peak and its value in the respective Trough.

As explained below, there are two different types of Maximum Drawdown:

 

Maximum Drawdown (without recovery) (until February 2021 this indicator was presented in the Economatica system under the name of Maximum Loss)

It is the largest drop that can be found within the period

 

Maximum Drawdown (with recovery) (until February 2021 this indicator was presented in the Economatica system under the name Maximum Drawdown)

It is the largest drop that can be found within the period, but considering only the peaks that were exceeded in the period.

 

The following image shows the two types of Maximum Drawdown

 

Image Added

 

Cases when the ratio cannot be computed

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