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Expected Maximal Drawdown

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There is a snail trail chart on the PsyQuation platform that shows a traders risk adjusted performance journey. We recently changed one of the parameters so that we now show the journey from inception, not just the last 90 days. The calculation for annualising returns is pretty standard. However, our calculation for estimating the Expected Maximal Annual Drawdown is far from standard. Over the years this method of calculating expected drawdown has proven to be a very reliable tool for us.

The message I wish to convey is don’t worry about the formulae simply use the snail chart to see how you are tracking towards your Goal.

Journey

Expected Maximal Drawdown over the period of T days is computed by the following formula (which depends on the sign of the mean daily log-returns):

Formula

Functions Qn and Qp do not have simple analytical expressions. Below you can see charts of Qn and Qp for different values of ? and ?

Chart

For the journey, the time horizon T is 252 days

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