Weekly Drawdown Metrics: Sugar (SB)
Risk can be defined in many ways ... the two Sugar charts below focus on a variety of drawdown risk measures that provide prospective on past risk and potential opportunity. Sugar, shown as a black line in each chart, is calculated using the Value Added Weekly Index (VAWI) method. The VAWI line assumes an initial $1,000 is invested in the market. Over time, weekly percent returns are summarized to show performance (i.e. an equity curve) over a three year time period. It should be noted that in the futures markets, we can't invest exact amounts because we cannot trade fractional contract, so the VAWI line provides direction but not actual price levels for the market. The VAWI method does however provide an advantage as it normalizes performance which allows us to evaluate a variety of futures markets all on the same scale.
Drawdown Definitions
- Current Drawdown: Open loss since last underwater equity high.
- Maximum Drawdown: Largest peak-to-valley loss.
- Underwater Volume Index: Accumulation of all drawdown periods.
- MAR: A ratio that compares Reward, defined as Compounded Annual Growth Rate (CAGR) to Risk, defined as Maximum Drawdown.
Three Year Drawdown Metric:
The trend is your friend:
The second chart shows a slow moving rolling analysis of the Underwater Volume Index. Specifically it sums up total drawdown over a twelve week period showing potential turning points for Sugar. The Blue circles and Green squares signify possible tops and bottom for the market. The best way to use the rolling UVI chart is as a longer-term trend based indicator by watching the general direction of the UVI. If it's moving higher we might expect bullish systems to fare better, while if it's trending lower we might look for bearish systems to trade more effectively. A quick look at the weekly rolling Underwater Volume Index chart could keep you on the correct side of the markets trend.
12 Week Rolling Underwater Volume Index Study:
[S&P 500 Index / Sugar Comparison]
Past Performance is NOT Indicative of Future Results. There is significant risk of loss investing in managed futures. This form of investment is not right for everyone. The subjective opinions expressed on this web site are solely those of the author and are not representative of the views of any other entity or individual. Click here to link to the full disclaimer.