System Analysis - Maximum Drawdown

[UselessBettor]

I'll write a few articles on a few of the things I look at for my systems. These are what I feel are important things but feel free to disagree.

Maximum Drawdown
This is the maximum units your system loses between the highest peaks in your system. For example if you had a profit of 100 units, lost 40 units, made 20 units, lost 40 units, made 70 units, your max drawdown was 60 total units which was -40+20-40 = -60 drawdown.

This helps identify how big a bank you need in order to be betting at a certain time. Alternatively it helps identify the bet size based on your bank size. Personally I think your drawdown should not exceed 5% of your bank. So in this case if you have a bank of $100 and your maximum drawdown is 20 units then your bet size should be 5/20 = 0.40c

For those who don't like risk you should probably even make the maximum drawdown only go to 2% of your total bank. In the example above this would be 2/20 = 0.10c

The effects of this are both positive and negative. It is positive in that you will mentally be able to stand the losing runs which could happen. But the negative is of course the winnings are less as you are betting less.

Personally I think the psychological impact of a small maximum drawdown when compared to the bank size makes it easier to follow a system through the bad times rather then throw it on the shelf.

But I also think this would be more important as your bank size grows. Losing $5 on $100 is no big deal, losing $500 on $10000 is a bigger deal. So size of bank can also dictate the amount you are willing to risk.

Anyway I'll try to write up one measure/system analysis tool every few days.

[moeee]

Nice Work UB.

But I am too stubborn to do as you suggest even though it appears very sensible.

My betting habit , apart from being a lousy handicapper and even lousier bettor , is stopping me from reaching Massive Winnings.
Regardless of whether my Bank is at $500 or $3,000 , I still bet pretty much the same amount.
Do you think there is a way I can increase my bet sizes with an increase in Bank?
Because at the moment , a similar amount of stress is caused when investing ten bucks regardless of Bank Size.
Can you suggest a step I could take to improve my mental capacity in this area?

[The Ocho]

Ratchet Staking.

I.E. 2% of your bank at any given time (or whatever is closest to your $10 to start with).

[Shaun]

Losing $5 on $100 is no big deal, losing $500 on $10000 is a bigger deal.

I see this as the same, would be no different in losing $5000 on 100k.

I think the draw down amount is a bit low as you say but i also don't like to bet more than 2% of my bank on any 1 selection.

Percentage of bank recalculated daily is my preferred option.

[beton]

There you go uselessbettor. You put something out there and shook the tree and are getting a response. That's what it is all about. Take some and give some back - anything. It all helps and is a better thing than all those trolls that come and just take. The mother of all invention is a different slant on a problem. Keep it coming there are some massive vacuum cleaners attached to this forum. Beton

[Bhagwan]

A respected method is betting 1/200th of current bank , adjusted up or down daily. (Not after each race.)

Doing it this way does not have the massive swings up & down as say betting 1/20th of bank up & down after each race.

The 1/200th approach also allows the punter to breath a lot easier because they already know in advance what they will be doing, if a horror day should strike.

It also allows for all bets to be made at once.

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Another approach is to work out what ones worst run of outs may be
e.g. 20 outs in a row.

Then multiply that figure x 10
e.g. 20 out x 10 = 200 unit bank needed for level stakes betting.
On a bad run , we stand to lose approx only 10% of bank.


An alternative would be ones largest draw down amount x 10
e.g. max draw down -18 units.
18 x 10 = Bank needed 180 units.

That way , the worst case scenario is that we will blow only 10% of our bank.
Most punters can live with that.