Checking the net asset value only once a day may miss the largest intraday drawdown
When comparing two strategy reports, you might see maximum drawdowns of 5% and 10%. Don’t be too quick to conclude that the first strategy is more stable. Whether they recorded net asset value at the same frequency affects this figure. A CFA Institute article on the basics of maximum drawdown also notes that measurement frequency can lead to differences.
Consider a hypothetical account with no deposits or withdrawals: yesterday’s closing net asset value was 100, today it fell to 80 during the day, then recovered to close at 101. If you keep only the two closing values, the sample is 100 and 101, and the drop is invisible. But the account did experience a 20% drawdown intraday.
Neither set of records has to be wrong; they simply answer different questions. A profitable close doesn’t erase the pressure on your capital along the way. In 24/7 markets such as $BTC , $ETH , and $BNB , this distinction is especially worth noting separately in your review.
When I look at a report, I first ask: Does it use daily or intraday data? Does it use equity that includes unrealized profit and loss, or only the realized balance? How are external deposits and withdrawals handled? If the methodologies aren’t consistent, the figures are difficult to compare directly.
Low-frequency records can be useful for long-term monitoring, but when assessing how much a position can withstand, you also need to know about the lows missed between sampling intervals. A smooth curve may partly be the result of the recording method.
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When comparing two strategy reports, you might see maximum drawdowns of 5% and 10%. Don’t be too quick to conclude that the first strategy is more stable. Whether they recorded net asset value at the same frequency affects this figure. A CFA Institute article on the basics of maximum drawdown also notes that measurement frequency can lead to differences.
Consider a hypothetical account with no deposits or withdrawals: yesterday’s closing net asset value was 100, today it fell to 80 during the day, then recovered to close at 101. If you keep only the two closing values, the sample is 100 and 101, and the drop is invisible. But the account did experience a 20% drawdown intraday.
Neither set of records has to be wrong; they simply answer different questions. A profitable close doesn’t erase the pressure on your capital along the way. In 24/7 markets such as $BTC , $ETH , and $BNB , this distinction is especially worth noting separately in your review.
When I look at a report, I first ask: Does it use daily or intraday data? Does it use equity that includes unrealized profit and loss, or only the realized balance? How are external deposits and withdrawals handled? If the methodologies aren’t consistent, the figures are difficult to compare directly.
Low-frequency records can be useful for long-term monitoring, but when assessing how much a position can withstand, you also need to know about the lows missed between sampling intervals. A smooth curve may partly be the result of the recording method.
Tap my avatar to view live trading with trade signals