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What Is Drawdown And How Can You Calculate It? - Winners Odds

What Is Drawdown And How Can You Calculate It?

Following a good tipster or a betting system can be a very profitable long term investment.

But no matter how good a tipster or system might be, you will inevitably experience a losing run sooner or later.

These losing runs are usually nothing to worry about if you are well prepared for them before they occur and half the battle in dealing with them is knowing what to expect.

You can do this by calculating the maximum drawdown.

The maximum drawdown is the biggest difference between a high point in results and the lowest subsequent point after that.

You can get a fairly good idea how big a drawdown may occur before following a tipster or betting system by taking a look at their historic results and applying a little mathematics.

Here’s how you can do it.

First off, the tipster service or system you are considering following should have at least 6 months worth of results.

Ideally these results should be proofed by a secondary source such as the results I keep updated monthly for these recommend tipsters.

http://winnersodds.com/tipster-portfolio

If a tipster or system doesn’t have at least 6 months of prior results, you would be better off holding off until it does or considering a different service.

You will also need some sort of spreadsheet software such as Microsoft excel to do the calculations for you.

If you don’t have excel, you could use a free alternative such as open office.

Once you have downloaded the results and opened up the spreadsheet you are going to need to add in an extra two columns after the running bank column.

These columns should be titled high point and maximum draw down.

The formula for the high point column should be as follows. (Note: you will need to replace my descriptions with the relevant cells within your spreadsheet)

For this example I’ll assume that the running bank figures are in column J and my high point columns is K and my drawdown column is L.

The collumn headers are in the first cell of each of these columns and the first numerical value is in cell 2.

The first cell in the high point column should just have the formula =(runningbank_cell2)

=(j2)

You can then adjust the following formulas to suit your spreadsheet as necessary.

The formula in the second cell of the high point column should be =IF(highpoint_cell2>runningbank_cell3,(highpoint_cell2),(runningbank_cell3))

=IF(K2>J3,(K2),(J3))

You can then drag this formula all the way down to the bottom of your results.

Now you can move onto the formula for the drawdown column which is:

=(runningbank_cell2-highpoint_cell2)

or

=j2-k2

Once you’ve entered this formula you can just drag it down to auto fill until the bottom of your results.

Once complete you can calculate the maximum drawdown by entering the following formula in any cell.

=MIN(drawdown_column:drawdown_column)

or

=MIN(L:L)

The number this formula gives you is the largest drawdown the tipster or system has currently experienced.

The question you have to ask at this point is how likely is this tipster or system going to experience a larger drawdown than this?

That will depend upon how many bets the current maximum drawdown has been calculated from.

If you have calculated the maximum drawdown from 5000+ bets then it is going to be pretty accurate.

If you don’t have as many bets as that to look back on then you will have to multiply your max drawdown to get a better estimate of what to expect.

Here’s some rough numbers I’d suggest using to give you a fairly good estimate.

5000+ bets = Multiply Max Drawdown by 1.1

3000 – 5000 bets = Multiply Max Drawdown by 1.25

1000 – 3000 bets = Multiply Max Drawdown by 1.5

500 – 1000 bets = Multiply Max Drawdown by 2

This will give you an idea of what sort of drawdown you can expect in the future when using a system or tipster and also give you a number that you can base your total bankroll size on.

Until next time,
Kenny Turnbull