Trading Thalesians: What the Ancient World Can Teach Us About Trading Today by Saeed Amen

Author:Saeed Amen [Amen, Saeed]
Language: eng
Format: mobi, epub
Publisher: Palgrave Macmillan
Published: 2014-10-31T00:00:00+00:00

Figure 5.4 S&P500 drawdowns differ depending on time period we use

Source: Thalesians, Bloomberg Finance L.P.

Let us illustrate our discussion by looking at S&P500. In Figure 5.4 we calculate various peak-to-trough drawdowns using different periods of history. It is easiest to describe maximum peak-to-trough drawdowns using such a plot. This drawdown is essentially the percentage difference between the highest and lowest points of an investment (see Figure 5.5). It is typically what most people mean when they talk about drawdowns. Other common drawdowns could be those specifically related to monthly, quarterly, and annual periods. This is a somewhat more technical term for the most money which we can lose, which we have discussed at length in the preceding chapters. This topic will come up later too.

We see that, omitting the Lehman period, there are smaller peak-to-trough drawdowns. We should note that if we had a much longer historical sample for S&P500 going back to the Great Depression, we would have had a much larger historical maximum drawdown, which would have eclipsed even the 2008 drawdown.

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