Help calculating max equity needed

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JJLL
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Help calculating max equity needed

#1 Postby JJLL » Tue Feb 28, 2017 11:10 am

Hello,
I'm overlooking part of my calculation and I can't seem to figure out what I'm missing :)

My goal is to calculate the total amount of equity needed to trade through a period of max. draw down. I have examples below. The first picture shows my settings for the EUR/USD and the max draw down period for that statement.

How much capital has to be deposited within the account so that I can trade through this period and not blow out the account? This second picture is of an account statement when the max. draw down occurred.

settings.jpg
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If anyone is interested, I can send you the actual spreadsheet. Right now, it takes approximately $15,000 to withstand this period of draw down. I'm hoping to get more accurate. I'm trying to create or find a formula that will tell me an exact amount.

Any help would be greatly appreciated!
Thank you.
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FX Helper
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Joined: Mon Apr 01, 2013 3:55 am

Re: Help calculating max equity needed

#2 Postby FX Helper » Thu Mar 02, 2017 8:22 am

Hello,

According to my info, the total loss of these orders can be -10207.08 (if all these 15 orders are losing).

Please note that you can also find the "Max drawdown" option in the "Statisctics" window and check its value, maybe it will help you.

JJLL
Posts: 56
Joined: Sat Jun 06, 2009 8:50 pm

Re: Help calculating max equity needed

#3 Postby JJLL » Fri Mar 03, 2017 2:32 pm

Thank you for your reply.

You wrote, "According to my info, the total loss of these orders can be -10207.08 (if all these 15 orders are losing)."

You may want to double check the numbers. The 15th trade made a profit. If you add up the first 14 trades (all loosing) you will have a loss of -5074.68

According to the exported spreadsheet from the account history, the max draw down was -6622.22

Here's actually why I'm posting. Below is a screen shot of the same trading period. The max draw down in the statistics window shows an amount of 6607.82

So which is correct? The amount in the statistics window or the amount in the Min Equity column on the exported account history?

Can you please tell me the exact calculation that FT3 uses to calculate Max Draw Down?

Thank You.
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Re: Help calculating max equity needed

#4 Postby FX Helper » Sun Mar 05, 2017 7:13 am

Hello,

I received -10207.08 by summing all 15 orders with loss. So I received -6622.22 for your 14 orders and then added -5132.40.

I thought that you need to know how much equity do you need to have if all these orders are losing orders.

The "Max drawdown" value in the "Statistics" tab is completely correct.
A drawdown is the reduction of one’s capital after a series of losing trades. This is normally calculated by getting the difference between a relative peak in capital minus a relative trough.
"Max drawdown" shows the biggest of these values.

JJLL
Posts: 56
Joined: Sat Jun 06, 2009 8:50 pm

Re: Help calculating max equity needed

#5 Postby JJLL » Fri Mar 17, 2017 12:05 pm

Hello,
Yes, you are almost correct. You wrote, "I thought that you need to know how much equity do you need to have if all these orders are losing orders." I'm trying to calculate the amount of capital/equity needed in order to withstand or successfully trade through this period of maximum drawdown.

You wrote, "This is normally calculated by getting the difference between a relative peak in capital minus a relative trough.
"Max drawdown" shows the biggest of these values."

I agree. So is it safe to say that if I add all of the negative amounts in the Min. Equity column that will tell me how much negative equity the account experienced? In this example, the Min Equity is:

-3.90
-3.90
-7.80
-15.60
-31.20
-58.08
-109.20
-218.40
-222.30
-331.50
-499.20
-752.70
-1131.00
-1704.30
-1533.14

Total - -6622.22 (keep this number in mind for what's shown below)



In FT3 under Symbol Properties, I check off the box entitled, "use leverage info to calculate" which is 100:1 and my lot size is 100,000

I've attached two links below. The first is a video showing your total loss amount of -10,207.08 (this amount is already 54.13% over the total amount of Min. Equity, -6622.22)

You can see in the account history that the initial deposit is 10,207.08

Now remember, you calculated the total amount of loss for ALL 15 trades, when really there are only 14 loosing trades. But for the sake of example, I added the theoretically loss.

In the video, you will see that I can not get past a trade with a lot size of 4.37.

http://4seasonsonline.com/FX/10207.mp4

The second video shows how I am able to trade through the period of max draw down with a deposit of 14,000. This amount of 14,000 is 111.40% greater than total amount of Min. Equity, -6622.22

I've tried using the amount of 13,750 and lesser amounts as a deposit but was still unable to trade past the lot size of 4.37

With the strength of FT3, I should be about to find/calculate and exact amount. For example, maybe I need 13,985 instead of 14,000. If you're wondering how I found the amount of 14,000... I did a number of back test in which I simply guessed the deposit amount.

http://4seasonsonline.com/FX/14000.mp4

As you can imagine, I don't like to spend time guessing :)

I appreciate your help and if anyone has any ideas or better yet, an explanation or formula to calculate MDD in FT3, I'd be very thankful.

FX Helper
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Re: Help calculating max equity needed

#6 Postby FX Helper » Sun Mar 19, 2017 6:20 am

Hello,

Yes, correct, if you sum all values in the "Min Equity" field, you will receive the maximum possible drawdown during trading.

As for the video:

As I can see, the last opened order had 4.37 lot.
What lot should the next order have?
As I can see, you have only 5140.2 USD left so if the next order has lot size bigger than 5.14, our software can't open it because of insufficient margin.
If you want to place bigger orders, you will need to deposit more money to your account, or increase the leverage.

JJLL
Posts: 56
Joined: Sat Jun 06, 2009 8:50 pm

Re: Help calculating max equity needed

#7 Postby JJLL » Thu Mar 23, 2017 12:22 pm

Hello,
You wrote, "Yes, correct, if you sum all values in the "Min Equity" field, you will receive the maximum possible drawdown during trading."

Thank you for verifying. So in the example shown above, and I will repost, the amounts shown in the "Min Equity" field are:

Lot Size - Min Equity

0.01 -3.90
0.01 -3.90
0.02 -7.80
0.04 -15.60
0.08 -31.20
0.16 -58.08
0.28 -109.20
0.56 -218.40
0.57 -222.30
0.85 -331.50
1.28 -499.20
1.93 -752.70
2.90 -1131.00
4.37 -1704.30
6.58 -1533.14

You wrote, “As I can see, the last opened order had 4.37 lot. What lot should the next order have?"

The next lot size after 4.37 should have been 6.58.

What you wrote next I believe will greatly help. You wrote, "As I can see, you have only 5140.2 USD left so if the next order has lot size bigger than 5.14, our software can't open it because of insufficient margin."

That last sentence is important. How did you calculate that a lot size, no larger than 5.14 would be possible?

You say, "As I can see, you have only 5140.2 USD left so.." Where in my posts or videos do you see the amount or calculate the amount of 5140.20? Because in theory, and this is where I'm having issues. I should be able to calculate all of the Min Equity, which is:

-3.90
-3.90
-7.80
-15.60
-31.20
-58.08
-109.20
-218.40
-222.30
-331.50
-499.20
-752.70
-1131.00
-1704.30
-1533.14

Total Min Equity = $6622.22 USD

Am I wrong to think that I will need more than 6622.22 USD? As I've mentioned, I cannot trade through this period of drawdown unless the account has roughly $14,000 USD. This is shown in the above video http://4seasonsonline.com/FX/14000.mp4

You wrote the following:

"Postby FX Helper » Thu Mar 02, 2017 1:22 pm
Hello,

According to my info, the total loss of these orders can be -10207.08 (if all these 15 orders are losing)."

The video above, this one - http://4seasonsonline.com/FX/10207.mp4 is a video which shows the account with a deposit of 10,207 USD. I excluded the .08 because the first trade in the video has a 7.80 gain. Sadly, even with a deposit of 10,207 USD trading through this period in not successful.

The amount of 14,000 USD is more than double the Min Equity. The leverage used in this example is 100:1

I am thankful for your replies and I am looking forward to hearing how you calculated the lot size of 5.14

Regards.

FX Helper
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Re: Help calculating max equity needed

#8 Postby FX Helper » Sat Mar 25, 2017 7:42 am

Hello,

I've received 5140.2 USD via this video:
http://4seasonsonline.com/FX/10207.mp4

I see that you had 10207.08 deposit and current profit is -5066.88

So 10207.08 - 5066.88 = 5140.2 - this is your current balance

So with leverage 100:1 and lot size 100,000 you can open the order with maximum 5.14 lot.

To open the order with 6.58 lot you need to have at least 6580 USD of balance.

Or you can increase leverage, in this case you can open orders with bigger lot sizes.

JJLL
Posts: 56
Joined: Sat Jun 06, 2009 8:50 pm

Re: Help calculating max equity needed

#9 Postby JJLL » Sat Apr 01, 2017 1:13 pm

Hello,
Thank you again for your reply.

You wrote, "I see that you had 10207.08 deposit and current profit is -5066.88

So 10207.08 - 5066.88 = 5140.2 - this is your current balance"

Yes, I understand and agree. The balance of 5140.20 is the amount in the account after the trade with a lot size of 4.37 is complete.

You wrote, "So with leverage 100:1 and lot size 100,000 you can open the order with maximum 5.14 lot."

Thank you, the last lot size entered into was 4.37 and the next trade which must be executed needs a lot of 6.58

Due to the remaining balance, or lack thereof, a lot size of 6.58 is not possible. I understand.

You wrote, "To open the order with 6.58 lot you need to have at least 6580 USD of balance."

I agree and understand. So to simply enter into the trade, the account will need a balance of 6580. It only has 5140.20

So when I change the deposit amount to reflect the additional capital needed, my calculation looks like this:


6580 - 5140.20 = 1,439.80 This is the amount which needs to be added the original deposit of 10207.08

10207.08 + 1439.80 = 11,646.88


Lastly, since there was equity lost during the trade with the 6.58 lot size . That amount of loss also needs to be calculated, so that the trade can successfully exit the position.

According to previous results from the exported account history shown above. During the trade that has a lot size of 6.58 (shown above) there was a period when -1533.14 of equity was lost.

I add 1533.14 to 11,646.88 which equals 13,180.02

Unless I am incorrect, I will need 13,180.02 to trade through this period of draw down. I'll round up and say 13,181.

Look here to see what happens - http://4seasonsonline.com/FX/13181.mp4

The strange thing is, when I use the amount of 13,181, trades are actually skipped. For some reason they are ignored? With an initial deposit of 13,181, I can enter into a trade which has a lot size of 6.58, but it takes place 3 months later than it should on 2012.07.13. This is incorrect. The trade should have been entered into on 2012.04.03. This date is shown above in my previous post and in the newer video below.

Also, as seen in the Journal, there are insufficient funds. So a lot size of 6.58 should never be possible. But somehow it happens?

Not good.



If I simply guess at how much of a deposit is needed, let’s say instead of 13,181, I place a deposit of 14,000

This amount works fine, but still, I'm simply guessing at the deposit amount. On the positive side, no trades are ignored.


This can be seen here - http://4seasonsonline.com/FX/14000a.mp4

Again, if I do a guess and bump the deposit amount up to 14,000 no trades are skipped or ignored and the outcome is perfect.

The problem I'm having is that I don't want to, nor should I have to guess at how much capital must be deposited into an account in order to withstand max draw down.
To simply increase leverage is not an option. Realistically, a broker can deny your request for an increase in leverage.

Trades being skipped or ignored based off of an accounts deposited amount also shows a great deal of inaccuracy with the software.

From the time and date shown in the videos, I'm literally performing test minutes apart and yet trades are being ignored based off of deposit amounts. Not good.

In FT 2.9 these events never occurred.


The amounts shown may seem miniscule or arbitrary, but in reality. The amounts traded live are much larger. Hence the reason why precision is needed.

I'd love to work on solving this issue. Any information you need from me, please ask. But not having the ability to calculate correct draw down, as well as having trades ignored for some reason. Not good at all.

Again, if there is anything I can do to help, please ask.

FX Helper
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Re: Help calculating max equity needed

#10 Postby FX Helper » Mon Apr 03, 2017 3:55 am

Hello,

Thank you for the update.

I found an error in my calculations, I didn't count the current EURUSD price, it was equal to 1 in my previous calculations.

Now I'm talking about not opening the order with 6.58 lot size.

The profit of all previous orders (before the order with 6.58 lot size) was -5066.88

The next order with 6.58 lot size should be opened at 1.32140 price.

So we multiply 6580 units by 1.32140 and receive 8694,812 - the amount of margin you need to have to open the order with 6.58 lot size.

So the total balance you need to have is 8694.812 + 5066.88 = 13761.692 ~= 13761.7

That's why the 6.58 order hasn't been opened when you has 13181 balance but everything worked when you had 14000.

You can use this calculator to calculate required margin:
http://www.fxpro.co.uk/trading/calculators/margin

JJLL
Posts: 56
Joined: Sat Jun 06, 2009 8:50 pm

Re: Help calculating max equity needed

#11 Postby JJLL » Fri Jun 09, 2017 4:04 pm

FXHelper,
It has been a number of weeks since my last post but I wanted to thank you for correcting and explaining the logic that was used in your calculation.

I have tested the amount you have shown and it works perfectly, again, thank you.

Although, I understand how you arrived at the answer above of 13761.70 for the EUR/USD. Would anything change for another currency pair? I do not think it would but I am having problems using this formula on other pairs.

For example, the AUD/CAD

I have a series of trades with a total loss of -2239.71

The next trade to enter has a lot size of 5.530 and the open price is 0.98037.

Using your calculation above I perform the following

1. 5530 units * 0.98037 = 5,421.4461
2. 5,421.4461 + 2239.71 = 7,661.1561
3. Round up to 7,661.16

So in order for this last trade to open, I need a minimum of 7,661.16 in the account.

My problem is that now, if I start testing with a deposit of 7,662 (I simply round upwards). I am still unable to enter into the last needed trade. I can enter into every trade prior but not the last in the series of trades.

Again, your explanation above worked perfectly for the EUR_USD, but with other pairs, not so much.

Any advice would be appreciated. If you would like to see this example in more detail, please ask.

Thank You.

FX Helper
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Joined: Mon Apr 01, 2013 3:55 am

Re: Help calculating max equity needed

#12 Postby FX Helper » Sun Jun 11, 2017 4:14 am

Hello,

The steps are the same for other pairs too.

You just need to calculate amount of margin you need to have for the last order and add this value to the total profit of your previous orders.

The only difference is that you need to create a project for two pairs - AUDCAD and USDCAD.
In this case our software will calculate the profit of orders properly.

If you create a project for AUDCAD pair only, our software will not have current pip value so all calculations will be incorrect.

JJLL
Posts: 56
Joined: Sat Jun 06, 2009 8:50 pm

Re: Help calculating max equity needed

#13 Postby JJLL » Fri Jun 16, 2017 5:03 pm

Hello and thanks again for your reply.

You wrote:
"The only difference is that you need to create a project for two pairs - AUDCAD and USDCAD.
In this case our software will calculate the profit of orders properly.

If you create a project for AUDCAD pair only, our software will not have current pip value so all calculations will be incorrect."

This is interesting. I trade multiple currency pairs. What I will do is start a new project, name the project the currency pair I'm working on then perform any testing using the data affiliated with that pair. Why would I need to create multiple project for more than the pair if I am only testing a single pair?

In the example above, I am using the EUR/USD. So I create a new project, choose the EUR/USD data and create the project. After that is finished, I perform my testing.

Now lets say that I want to create a new project using the data of a different currency pair, lets say the EUR/GBP, how would I do that successfully? Am I wrong to assume that every time a new project is created that data imported from the selected pair is used? I'm just trying to understand why or how I can create new projects using correct pip values.

Thank You

FX Helper
Posts: 954
Joined: Mon Apr 01, 2013 3:55 am

Re: Help calculating max equity needed

#14 Postby FX Helper » Sat Jun 17, 2017 6:05 am

Hello,

yes, if you want to test EURGBP pair, please create a new project for EURGBP and GBPUSD pairs, in this case our software will calculate the profit in USD for non-USD pair.

If you test USD pair (EURUSD or AUDUSD, for example), you need to create a project for one pair only.

When the project is created, our software generates ticks based on the download data so you just need to download historical data from our server before creating a project.

And you can switch between different projects when necessary.

JJLL
Posts: 56
Joined: Sat Jun 06, 2009 8:50 pm

Re: Help calculating max equity needed

#15 Postby JJLL » Tue Jun 27, 2017 9:48 am

Thank you for your reply.

You wrote, "if you want to test EURGBP pair, please create a new project for EURGBP and GBPUSD pairs, in this case our software will calculate the profit in USD for non-USD pair."

This is interesting. Are you saying that since FT3 is creating trading accounts denominated in USD, then to test a pair that does not include the USD must have a USD based pair included in the new project?

I trade a number of different pairs, many that are not paired with the USD. If the above is true, I understand why (since the account is denominated in USD). Would I need at least one USD based pair in the project to calculate profit?

For example, lets say that I create a project with the following pairs:

AUD/CHF
CAD/JPY
EUR/NZD
GBP/AUD

Since profits are calculated in USD, and there are no pairs which include the USD. In order to create a statement showing correct profitability, I would need to add, lets use the EUR/USD to the list above?

If this is true, it's not a problem for me. I'm just trying to understand the logic of FT3.

Much Thanks!

FX Helper
Posts: 954
Joined: Mon Apr 01, 2013 3:55 am

Re: Help calculating max equity needed

#16 Postby FX Helper » Wed Jun 28, 2017 3:58 am

JJLL wrote:Thank you for your reply.

Are you saying that since FT3 is creating trading accounts denominated in USD, then to test a pair that does not include the USD must have a USD based pair included in the new project?



Yes, that's what I said, that's how trading works.
Our software (and other programs/trading platforms) need to know current price if the -USD pair when testing non-USD pair to calculate the lot size in USD correctly.

So if you test

AUD/CHF - you need to create a project for AUD/CHF and USD/CHF
CAD/JPY - you need to create a project for CAD/JPY and USD/JPY
EUR/NZD - you need to create a project for EUR/NZD and NZD/USD
GBP/AUD - you need to create a project for GBP/AUD and AUD/USD

In this case our software will calculate the profit size for each order correctly.

JJLL
Posts: 56
Joined: Sat Jun 06, 2009 8:50 pm

Re: Help calculating max equity needed

#17 Postby JJLL » Fri Jun 30, 2017 2:40 pm

Hello FX Helper,
Thanks again for your reply.

You wrote, "Our software (and other programs/trading platforms) need to know current price if the -USD pair when testing non-USD pair to calculate the lot size in USD correctly."

I understand that the above is needed to calculate the correct lot size. Let me ask about margin and equity.

I've used your method above in post #10, let me restate:

----------------------------

"The profit of all previous orders (before the order with 6.58 lot size) was -5066.88

The next order with 6.58 lot size should be opened at 1.32140 price.

So we multiply 6580 units by 1.32140 and receive 8694,812 - the amount of margin you need to have to open the order with 6.58 lot size.

So the total balance you need to have is 8694.812 + 5066.88 = 13761.692 ~= 13761.7"

----------------------------


Let me use the following as my example, you wrote, "AUD/CHF - you need to create a project for AUD/CHF and USD/CHF"

I know that when I run a back test for the AUD/CHF, I have a number of losing trades which total -758.09

The final order with a 1.36 lot size opens at a 0.71762 price.

Next, 1360 units is multiplied by 0.71762 which equals 975.9632 CHF.

Lastly, the total balance needed to successfully trade this position which has a lot size of 1.36 would be 1,734.06 CHF or 758.09 + 975.97 = 1,734.06

I know that I need 1,734.06 CHF to trade but does FT3 offer a way to see/view the USD amount needed to trade?



I know that the trade with the lot size of 1.36 occurred on 2016.06.22 04:00:00. My end goal is to know how much USD is needed to trade the period of draw down.

I know I can see the exchange rate for the USD/CHF for the same day but, is there a better way?

Again, thank you for your insight.

FX Helper
Posts: 954
Joined: Mon Apr 01, 2013 3:55 am

Re: Help calculating max equity needed

#18 Postby FX Helper » Mon Jul 03, 2017 9:11 am

Hello,

No, sorry, our software doesn't have an option to show how much money you need to open a next order.
It only checks if you have enough free margin when placing a new order.
If there is enough margin - the order is placed, if margin is not enough - the order is not placed.

So the best way is to use margin calculator so you can check how much money you need.

JJLL
Posts: 56
Joined: Sat Jun 06, 2009 8:50 pm

Re: Help calculating max equity needed

#19 Postby JJLL » Fri Aug 25, 2017 2:46 pm

I understand. Thank you for your reply.


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