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Hi, I need some ideas for reducing drawdown in momentum strategies. I can break down the problem into 3 questions:
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Derek Tishler
1. Returns can be a useless metric. A 70% drawdown would be very hard to sit through in real life and most everyone would rather use the SPY as an investment so they can sleep at night. Try focusing on sharpe, profit-loss ratio, drawdown, and other risk based metrics that better illustrate risk-adjusted "insights" into the algo's performance.
2. Really depends on the algo; mechanically speaking you can try playing with lower resolution and a relative stop or something for 'faster' reactions, but be wary of overly tight stops which kick you out of positions during volatile periods.
3. Not sure how to avoid this...perhaps position sizing and/or profit taking can be of help to reduce exposure over time.
Alpha
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
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