Measuring Drawdown Duration, Frequency, and Recovery Beyond the Maximum

Summary

This article explains why maximum drawdown alone gives an incomplete picture of strategy risk: two equity curves with the same peak-to-trough loss can differ greatly in how often they decline, how long they remain underwater, and how quickly they recover. It describes an MQL5 analyzer that rebuilds a balance-like curve from daily closed profit and loss, identifies separate drawdown episodes, and reports their depth and duration alongside the share of records spent below a prior high-water mark.

The additional measures include the Ulcer Index, which combines drawdown depth and persistence, the Pain Index, which averages daily underwater values, and Recovery Factor, which relates net profit to maximum drawdown. The tool also combines measures into a resilience grade and recommendations. Its evidence is methodological rather than a comparative performance study. A central limitation is that daily closed P&L does not capture intraday losses or floating losses on open positions; episode duration is counted in trading records rather than calendar days. An equity snapshot series would be needed to measure floating-equity drawdowns.

Key ideas

• Maximum drawdown omits how often declines occur and how long recovery takes.
• The analyzer reconstructs an equity path from daily closed P&L and segments its underwater periods into episodes.
• The Ulcer Index and Pain Index summarize underwater depth and persistence in different ways.
• Recovery Factor compares net profit with the worst drawdown, while time underwater measures persistence.
• Daily closed-P&L inputs miss intraday and open-position drawdowns, and duration is measured in trading records.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.