The backtest below is a simple strategy where you buy SPY when the 15 day MA is above the 63 day MA and sell when 15 day MA crosses below 63 day MA. My question: The max drawdown from this strategy is calculated to be 15.8%. How is that number calculated? I hold SPY, which should track the benchmark fairly well, for several months in some cases. I would expect the maximum drawdown to be near 100%. Is the "max" drawdown actually the average drawdown?
100% drawdown would be the same as saying "lost all the money". I don't see anywhere on the blue line where it goes to -100%.
But I do see some places where it could have lost up to 16% of the portfolio value. E.g. from the peak at the start of 2010 to the trough in September that year.
Definition of 'Drawdown'
The peak-to-trough decline during a specific record period of an investment, fund or commodity. A drawdown is usually quoted as the percentage between the peak and the trough.
http://www.investopedia.com/terms/d/drawdown.asp
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