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INDEX
1. WHAT IS IT?
2. WHAT DRIVES IT?
3. QUESTIONS?
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TS Rally vs. Drawdown – What is it?
A measure of absolute profit / loss potential
What is the gross best / worst case for a strategy?
Worst loss / Best Win for an investor over the last 12 periods1
2 Best Case / Worst Case scenario in any given strategy
3 Gross measure of risk / potential in any given strategy
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TS Rally vs. Drawdown – What is it?
Rally vs. Drawdown explained
Best / Worst case multiples of the current standard deviation
Time
Return
R1 1.8 σ R2 3.6 σ R3 4.2 σ
D1 -2.9 σ D2 - 4.4 σ
Standard deviation Current σ Rally / Drawdown in % of Equity
Rally 4.2 σ
8.3%
TS Rally = 4.2 * 8.3 % = 34.86 %
Drawdown - 4.4 σTS DD = - 4.4 * 8.3 % = - 36.52 %
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INDEX
1. WHAT IS IT?
2. WHAT DRIVES IT?
3. QUESTIONS?
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TS Rally vs DD – What drives it?
Impact Rationale
Biggest rally
• Measure of maximum potential profit for
an investor coming in at an optimum point in
time
• How good could it get?
Biggest
drawdown
•Measure of maximum potential loss for an
investor coming in at the worst possible
point in time
• How bad could it get?
Standard
deviation
•Both win and loss ought to be put in
context of usual volatility patterns
• Wins and losses should be put in the context of
overall volatility for a strategy
Recent TS Risk
• Drives the standard deviation • Whereas the biggest drawdown / Rally are for
the last 12 periods, they are compared for
updated risk
Ex - Experience• The higher Ex, the more representative
Rally / Drawdown becomes
• Rally and Drawdown should ideally only be
compared across strategy’s with similar Ex
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INDEX
1. WHAT IS IT?
2. WHAT DRIVES IT?
3. QUESTIONS?
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Questions?
Trading is hard – no wonder there are unanswered questions!
(Why not, together, build a Knowledge Base that answers them all?)
• The Knowledge Base contains TS Mentors’
answers to all your questions!
• Mentors are Traders like you who
enjoy helping out, and are voted
very good at it, AND
• Trading educators hand-picked for
quality and broker independence,
who pitch their materials
• Want to contribute? Great!
• Post an article / Post
• Ask or answer questions
• Rate fellow traders’ contributions
• We’ll treat top contributors like shareholders!
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Can you do better?
• This article is a “stub” (an unfinished entry that MUST be improved)
• We need your questions & feedback to improve it!
• Feel free to post your questions to the TS Knowledge Base
• Have suggestions?
• [email protected] can’t wait to hear them
• We’d love to credit you for improving our content
• Contributing to the Q&A sections will boost your mentor score if others like what you post
(even questions do!) – helping out will reflect on your community standing, which means
• More traders will visit the URL on your profile
• When they visit, they’ll request your mentoring!
• If they do it enough, we’ll share revenues and offer invitations to you
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TS Leverage – What is it?
An apples to apples comparable measure of leverage across asset classes
Defined in terms of the volatility of EUR/USD - the world’s benchmark risk asset
The standard measure of leverage at TS1
2 Comparable across all risky assets available at the TS Challenge
3 TS Leverage: Leverage multiples of a 1:1 EUR/USD leverage trade
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TS Leverage – What’s the point
Nominal leverage is an imperfect proxy for investor risk
The Dollar value per unit of risk of different assets is VERY different
USD / CAD JPY / GBP EUR/USD Impact
Denomination CAD GBP USD
• 1:1 Levered GBP / JPY trade, per USD
• 1.25 times riskier than EUR / USD trade,
• 1.6 times riskier than CAD / USD
Daily Volatility
/ Risk0.5% 2% 0.7%
• 1:1 Levered GBP / JPY trade, per USD
• 3* (2%/0.7%) riskier than EUR / USD
• 4* (2%/0.5%) riskier than CAD / USD
Relative risk to
EUR / USD 100%
• 1:1 JPY / CAD trade is (357% / 57%) = 6 *
riskier than 1 : 1 USD / CAD trade
• 1:1 leverage means different investor risk for
different assets!
All leverage measures at TS are benchmarked to 1:1 EUR / USD risk
