:: Maximum Drawdown

Month	ROI	VAMI
1	62.4%	$1,624
2	3.2%	$1,675
3	9.3%	$1,830
4	0.8%	$1,844
5	-17.5%	$1,521
6	-1.2%	$1,366
7	-4.3%	$1,307
8	-12.7%	$1,141
9	-16.3%	$955
10	2.2%	$976
11	-7.8%	$901
12	-1.3%	$889
13	-21.5%	$697
14	20.8%	$842
15	14.1%	$961
16	1.5%	$975

Maximum Drawdown

With the VAMI calculated over a period of time, it allows for another useful measurement of an advisory service's trading, and that is their maximum drawdown. This measures, as a percentage, the maximum loss that a service has experienced.

:: Your Trading Capital

This is an important figure to know because when we speak of drawdown, what is being referred to is a drawdown of your trading capital. As the service experiences losing trade after losing trade, that loss will be reflected in your bank. As you keep trading, you keep drawing down on your capital to fund your trades. The question is: how much (as a percentage) did you have to draw down before the service had its next winning trade?

With your VAMI calculations in place this becomes quite simple to work out because the unit used to measure the loss is the VAMI. It is taken from the top of a particular move (the time when the losing trades started) to the bottom (to the next winning trade).

:: Formula

((Bottom VAMI - Top VAMI) / Top VAMI) x 100

:: Calculation

From the data in the calculation box, the Top VAMI would have been in month 4, with the Bottom VAMI in month 9. The maximum drawdown would then be calculated:

((955 - 1844) / 1844) x 100 = -48.2%

The drawdown in this case, over a period of only 5 months, was -48.2%. As you can see (and these are actual trading results) you can lose a lot of your capital within a relatively short period of time.