Calculating Drawdowns

I’ve had a lot of emails about staking recently. Primarily due to the comments over on our Betfair ATM review here.

This has made me think about staking plans and the size of bankroll that you should be using.

You may know that I always recommend using flat staking.

Staking plans are often misunderstood as a way to turn losing selections into profitable ones.

But, nothing could be further from the truth.

In fact, if you can’t make a profit flat staking then if you put a staking plan into practice on the selections only one thing is going to happen…

…you’ll lose your money faster!

And this is why I always recommend flat staking when you’re first starting out. Of course, when you’re more experienced and you’ve got profitable selections then flat staking may not be the optimal solution.

It’s certainly going to be the simplest, but you may be able to make more profits by applying a different staking approach.

But that’s not what I want to look at today.

Assuming that you’re currently flat staking, and unless you’re already making good profits with your selections then you should be, the big question is:

How do I decide on the number of units to have in my bankroll?

In the past I have suggested that you use a method that estimates the number of losing bets you’re going to get. If you want to read how to do that, then you can here.

Today however, I want to suggest a different approach.

With a number of platforms out there that will allow you to build systems and get historic results downloaded, it’s possible to get hundreds of selections for your system over a number of years.

When you’ve got at least 100 winners in your results, there’s another way that you can calculate how large your bankroll should be.

This is by using the data you’ve got to calculate the largest drawdown.

It’s important to point out that a drawdown is different from a losing streak. A losing streak is how many losing bets are you have back-to-back. A downswing is how much your bankroll drops from it’s highest point to it’s lowest point.

If you have enough selections then you can work out your drawdown and use that as the basis for how many units your bankroll should have.

So let’s take a look at how to do this. To calculate this I’m going to use results from 2008 to present of one of my place betting strategies, you can download the Excel file at the end of this post so you can see the calculations.

Here is a screenshot of this spreadsheet:

You may collect the same data for your results, more or less, it doesn’t matter. It’s the two columns on the end that are important.

You may notice that the Race Profit is the same for every horse in a race. That is because the way my system builder works is to print out the total race profit for each horse bet in the race. This particular approach bets a large number of runners in every race.

However the column next to it, Rolling Race Profit, only takes into account the race profit from each race once.

But the two columns we are most interested in are the High Point and the Drawdown columns.

The High Point column calculates the highest bankroll point in the selections, the drawdown column calculates the current drawdown from the highest bankroll point on every bet.

Calculating the High Point is a very simple formula, all you need is a rolling profit column.

In this example the Rolling Profit is in column L and so in column M we put:

=MAX(L3,M2)

This shows the largest figure, it’s either the figure in the Rolling Profit column or the figure above in the High Point column.

It will always show the largest and so track the High Point of your bankroll with every bet.

Once we have this we can create the Drawdown column.

At first glance the formula for this column looks complicated, but I promise it isn’t. In my spreadsheet example, which you can download below, the formula looks like this:

=IF(M3=L3,N(N2),L3-M3)

Don’t worry, I’m going to go through exactly what each of these letters and numbers mean.

First of all notice we are using an IF statement. That means that IF the figure in cell M3 is the same as the figure in cell L3 we perform the calculation after the first comma, if it isn’t then we perform the calculation after the second comma.

N(N2) simply returns the Number that is in cell N2. That’s it.

L3-M3 takes the number in cell L3 and subtracts the number in cell M3 from it.

So…

If the number in cell M3 equals the number in cell L3 then show the number in cell N2, otherwise take the number in cell L3 and subtract the number in cell M3 from it.

To clear this up let me run through an example from the screenshot above. Let’s look at row 21, the result for the horse Triumphant Welcome.

M21 (High Point column) has -2.36 in it and L21 (Rolling Profit column) has -4.39 in it.

So the first part of our formula asks if the High Point is the same as the Rolling Profit:

=IF(M3=L3

In this case it isn’t, so we move to the formula after the second comma.

This formula has us doing L21-M21 or… Rolling Profit minus the High Point. This is:

-4.39 minus -2.36 = -2.03

This means that our profit is currently -4.39 and our previous high point was -2.36 so we are currently -2.03 from our previous high point.

Once you’ve put the formula into one cell, you can copy it all the way down. And then you need one last formula, which I have put into the cell under Max Drawdown.

This formula is:

=MIN(N:N)

This means, what is the lowest number in the column N (the drawdown column in our spreadsheet).

In this example it is -78.17 and that tells us that the biggest drawdown over the 4402 races in this results file is just over 78 units.

Of course, it’s always possible to get a drawdown that is bigger than the one in your current results file. The likelihood of this happening is dependent on how big the results file is.

Taking this into account, add a little bit more to the biggest drawdown figure and make it your bankroll.

In this example the chances of a bigger drawdown are a lot lower because there is over 4400 races and coming up to 15,000 bets recorded. With that in mind, I would round the bankroll required for these selections up to 100 units.

Now you’ve read through this, grab a copy of the spreadsheet here and then go back through it again.

With a large enough amount of results for your selections then this is a very effective way of determining how large your bankroll should be.

If you have any questions on how to use this, or just want to say hi :), please leave me a comment below.