S&P 500 E-mini FuturesEducation
UPDATED - SP500 Futures Drawdown Analysis
Overview & Reason for Update
Hi all - I found some errors in my previous post that I wanted to correct. It was better to just scrap that idea and move on, so here we are. After some peer review and testing I am back with an analysis of the ES futures contract and its historical drawdowns. I am using daily logarithmic returns for this analysis.
Analysis:
Drawdown Range | Count | Percentage | Avg Drawdown | Median Drawdown | Max Drawdown | Min Drawdown | Avg Duration (days)
------------------------------------------------------------------------------------------------------------------------
0% to -0.5% | 32 | 31.07% | -0.17% | -0.15% | -0.50% | -0.00% | 1.22
-0.5% to -1% | 10 | 9.71% | -0.74% | -0.73% | -0.97% | -0.50% | 2.10
-1% to -2% | 23 | 22.33% | -1.42% | -1.28% | -1.94% | -1.01% | 5.78
-2% to -3% | 8 | 7.77% | -2.44% | -2.22% | -2.92% | -2.05% | 10.50
-3% to -5% | 12 | 11.65% | -3.72% | -3.57% | -4.60% | -3.02% | 13.83
-5% to -10% | 10 | 9.71% | -6.81% | -6.21% | -9.17% | -5.19% | 31.70
-10% to -20% | 4 | 3.88% | -13.72% | -12.27% | -19.85% | -10.49% | 128.75
Over -20% | 4 | 3.88% | -41.29% | -41.05% | -57.25% | -25.80% | 901.00
Current Drawdown Analysis:
Duration (days): 17
Current Drawdown (%): -5.27%
Max Drawdown (%): -8.83%
Summary of Results:
1. Drawdown Ranges:
- 0% to -0.5%: These minor drawdowns happen frequently (32 instances) and typically last just over a day on average (1.22 days).
- -0.5% to -1%: Less frequent, with a slightly longer average duration of 2.1 days.
- -1% to -2%: These drawdowns are more significant, averaging around 5.78 days.
- -2% to -3%: The average duration here increases to 10.5 days, reflecting the more sustained nature of these drawdowns.
- -3% to -5%: These drawdowns, which are even more severe, last on average 13.83 days.
- -5% to -10%: These significant drawdowns occur less frequently but have a much longer average duration of 31.7 days.
- -10% to -20%: Rare and severe, these drawdowns last on average 128.75 days.
- Over -20%: These extreme drawdowns are the rarest but most prolonged, with an average duration of 901 days.
2. Current Drawdown Analysis:
- Duration: The current drawdown has lasted 17 days so far.
- Current Drawdown (%): The current level of drawdown is -5.27%.
- Max Drawdown (%): During this period, the maximum drawdown observed was -8.83%.
Interpretation:
- Drawdown Duration: The data shows that the average duration of drawdowns increases with their severity. Minor drawdowns (0% to -0.5%) tend to resolve quickly, usually within a day or two. However, as the severity of the drawdown increases, so does the time required to recover. Drawdowns of -5% to -10% last about a month on average, while the most severe drawdowns, over -20%, can last for several years. This suggests that the market is often quick to recover from minor corrections but takes significantly longer to recover from more severe downturns.
- Impact on Trading Strategy: Understanding the typical duration and severity of drawdowns is crucial for managing risk in trading strategies. For instance, traders and investors should be prepared for prolonged periods of underperformance following severe drawdowns. This could involve adjusting position sizes, setting more conservative stop-loss levels, or diversifying to mitigate the impact of long drawdown periods.
- Current Market Context: The ongoing drawdown of -5.27% over 17 days is consistent with the typical behavior of drawdowns in this range, which usually last about a month. The maximum observed drawdown of -8.83% within this period is relatively severe, indicating that the current market environment is challenging. Traders might consider this when making decisions about holding positions, as there may be further volatility ahead before recovery.
- Strategic Adjustments: Given the data, it would be prudent to review stop-loss levels and consider reducing exposure during periods of heightened volatility, especially when drawdowns reach the -5% to -10% range. The fact that more severe drawdowns take longer to recover from means that capital could be tied up for extended periods, reducing the opportunity to capitalize on other market opportunities.
- Long-Term Planning: For long-term investors, understanding that severe drawdowns over -20% can take years to recover from emphasizes the importance of having a solid financial plan that can withstand prolonged downturns. This might involve ensuring liquidity during such periods or considering hedging strategies to protect against significant losses.
Hi all - I found some errors in my previous post that I wanted to correct. It was better to just scrap that idea and move on, so here we are. After some peer review and testing I am back with an analysis of the ES futures contract and its historical drawdowns. I am using daily logarithmic returns for this analysis.
Analysis:
Drawdown Range | Count | Percentage | Avg Drawdown | Median Drawdown | Max Drawdown | Min Drawdown | Avg Duration (days)
------------------------------------------------------------------------------------------------------------------------
0% to -0.5% | 32 | 31.07% | -0.17% | -0.15% | -0.50% | -0.00% | 1.22
-0.5% to -1% | 10 | 9.71% | -0.74% | -0.73% | -0.97% | -0.50% | 2.10
-1% to -2% | 23 | 22.33% | -1.42% | -1.28% | -1.94% | -1.01% | 5.78
-2% to -3% | 8 | 7.77% | -2.44% | -2.22% | -2.92% | -2.05% | 10.50
-3% to -5% | 12 | 11.65% | -3.72% | -3.57% | -4.60% | -3.02% | 13.83
-5% to -10% | 10 | 9.71% | -6.81% | -6.21% | -9.17% | -5.19% | 31.70
-10% to -20% | 4 | 3.88% | -13.72% | -12.27% | -19.85% | -10.49% | 128.75
Over -20% | 4 | 3.88% | -41.29% | -41.05% | -57.25% | -25.80% | 901.00
Current Drawdown Analysis:
Duration (days): 17
Current Drawdown (%): -5.27%
Max Drawdown (%): -8.83%
Summary of Results:
1. Drawdown Ranges:
- 0% to -0.5%: These minor drawdowns happen frequently (32 instances) and typically last just over a day on average (1.22 days).
- -0.5% to -1%: Less frequent, with a slightly longer average duration of 2.1 days.
- -1% to -2%: These drawdowns are more significant, averaging around 5.78 days.
- -2% to -3%: The average duration here increases to 10.5 days, reflecting the more sustained nature of these drawdowns.
- -3% to -5%: These drawdowns, which are even more severe, last on average 13.83 days.
- -5% to -10%: These significant drawdowns occur less frequently but have a much longer average duration of 31.7 days.
- -10% to -20%: Rare and severe, these drawdowns last on average 128.75 days.
- Over -20%: These extreme drawdowns are the rarest but most prolonged, with an average duration of 901 days.
2. Current Drawdown Analysis:
- Duration: The current drawdown has lasted 17 days so far.
- Current Drawdown (%): The current level of drawdown is -5.27%.
- Max Drawdown (%): During this period, the maximum drawdown observed was -8.83%.
Interpretation:
- Drawdown Duration: The data shows that the average duration of drawdowns increases with their severity. Minor drawdowns (0% to -0.5%) tend to resolve quickly, usually within a day or two. However, as the severity of the drawdown increases, so does the time required to recover. Drawdowns of -5% to -10% last about a month on average, while the most severe drawdowns, over -20%, can last for several years. This suggests that the market is often quick to recover from minor corrections but takes significantly longer to recover from more severe downturns.
- Impact on Trading Strategy: Understanding the typical duration and severity of drawdowns is crucial for managing risk in trading strategies. For instance, traders and investors should be prepared for prolonged periods of underperformance following severe drawdowns. This could involve adjusting position sizes, setting more conservative stop-loss levels, or diversifying to mitigate the impact of long drawdown periods.
- Current Market Context: The ongoing drawdown of -5.27% over 17 days is consistent with the typical behavior of drawdowns in this range, which usually last about a month. The maximum observed drawdown of -8.83% within this period is relatively severe, indicating that the current market environment is challenging. Traders might consider this when making decisions about holding positions, as there may be further volatility ahead before recovery.
- Strategic Adjustments: Given the data, it would be prudent to review stop-loss levels and consider reducing exposure during periods of heightened volatility, especially when drawdowns reach the -5% to -10% range. The fact that more severe drawdowns take longer to recover from means that capital could be tied up for extended periods, reducing the opportunity to capitalize on other market opportunities.
- Long-Term Planning: For long-term investors, understanding that severe drawdowns over -20% can take years to recover from emphasizes the importance of having a solid financial plan that can withstand prolonged downturns. This might involve ensuring liquidity during such periods or considering hedging strategies to protect against significant losses.
Disclaimer
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