FAQ Section | Frequently Asked Questions

The drawdown duration measures how long a measurement object needs to fully recover from a drawdown. It supplements the maximum drawdown with the crucial question: How long was capital tied up or encumbered? 

Why is drawdown duration a T2 KPI? 
While the maximum drawdown describes the depth of a loss, the drawdown duration addresses its temporal dimension. This key figure is essential for a realistic risk and exposure assessment, but is reported much less frequently - hence T2. 

On which measurement dimension is the drawdown duration considered? 
The drawdown duration is primarily meaningful at: 

• Account level 
• Portfolio level

The underlying levels of consideration are explained in the section "Measurement dimensions of KPIs".

What does the drawdown duration measure specifically? 
The period between: 

Time of the peak ↔ Time of full recovery (new peak) 

The drawdown duration only ends when the previous peak is reached or exceeded again. 

Example 
An account reaches a high of €20,000 on January 1. On February 15, the account balance falls to €15,000 (drawdown). On June 30, a value of €20,000 is reached again for the first time 

→ Drawdown duration: approx. 6 months 

How should the drawdown duration be classified correctly?
The drawdown duration describes the duration of a strategy: 

• Capital is tied up 
• New highs fail to materialize 
• Psychological pressure increases 

Two strategies with identical drawdowns can therefore differ massively if the recovery time varies greatly. 

Typical misinterpretation 
A small drawdown automatically means a short recovery phase. 

Why this is not true:
Even moderate drawdowns can extend over long periods of time if the strategy is structurally slow or has low volatility. 

Interaction with other KPIs 
Drawdown duration should always be considered together with: 

• Maximum drawdown (T1) 
• Performance (T1) 
• Profit factor (T1) 

Only the combination of depth + duration + result allows a well-founded risk assessment.

Differentiation: 
Drawdown duration vs. frequency of drawdowns 

The drawdown duration measures a single recovery phase. It says nothing about how often drawdowns occur or whether there are several short drawdowns. These aspects are mapped by further T2/T3 KPIs 

Short conclusion 
The drawdown duration answers the question: How long did a setback have to be endured until the capital was back at the old level? It makes risk tangible in terms of time - and thus closes a key gap in the T1 key figures.

Not every drawdown is the same. While the maximum drawdown duration describes the extreme case, the average drawdown duration shows how setbacks typically feel. 

The two key figures answer different questions and complement each other. 

On which measurement dimension are these metrics considered?  
Drawdown duration is primarily interpreted at: 

• Account level  
• Portfolio level  

See section "Measurement dimensions of KPIs". 

What does the average drawdown duration measure specifically? 
Measured is: 

:: Average time span between peak and full recovery across all drawdowns 

It describes the typical time frame of a strategy. 

What does the maximum drawdown duration measure specifically? 
Measured is: 

:: Longest single recovery phase after a drawdown 

It describes the worst historical case in terms of time. 

Example 
A strategy has the following drawdown durations over several years: 

• 1 month 
• 2 months 
• 3 months 
• 10 months 

→ Average drawdown duration: approx. 4 months 
→ Maximum drawdown duration: 10 months 

How should both key figures be classified? 

• Average drawdown duration 
  → describes the normal state 
• Maximum drawdown duration 
  → describes the extreme case 

A strategy can appear stable in everyday life, but have very long recovery times during periods of stress.

Typical misinterpretation 
The maximum drawdown duration is overly pessimistic 

Why this is not true: 
Extreme phases are rare, but real. They define the breaking point of a strategy - not the average. 

Short conclusion 
The average drawdown duration describes how setbacks usually feel, the maximum drawdown duration shows how bad it can get. Both perspectives are necessary for a realistic risk assessment.

"Time under water" refers to the total time in which a measurement object is below its previous high. In contrast to the individual drawdown duration, this key figure considers the cumulative time exposure. 

On which measurement dimension is time under water considered?
Primarily at: 

• Account level  
• Portfolio level  

See section "Measurement dimensions of KPIs"  

What does Time under Water measure specifically? 
Measured is: 

:: Sum of all periods in which the value is below the previous high 

It does not matter how deep the drawdown is - what matters is the time below the high.

Example 
Over the course of a year, a portfolio is: 

• 3 months below the high 
• 2 months below the high 
• 1 month below the high 

→ Time under water: 6 months 

What is the correct classification of time under water? 
This key figure describes the perceived stress of a strategy: 

• long phases without new highs 
• mental fatigue 
• declining discipline 

It is particularly relevant for psychological sustainability. 

Typical misinterpretation 
Time under water is just another form of drawdown duration. 

Why this is not true: 
Drawdown duration looks at individual phases, time under water looks at the sum of all stressful phases 

Short conclusion 
Time under water makes it clear how long a strategy was "under water" overall. It adds a crucial emotional dimension to drawdown depth and duration.

The recovery factor puts the performance achieved in relation to the maximum drawdown. It shows how efficiently a strategy recovers losses. 

Why is the recovery factor a T2 KPI? 
While T1 KPIs consider result (performance) and risk (drawdown) separately, the recovery factor combines both dimensions in one relation. It is reported less frequently, but provides a high level of insight - hence T2. 

On which measurement dimension is the recovery factor considered? 
The recovery factor is primarily meaningful at: 

• Account level 
• Portfolio level

See section "Measurement dimensions of KPIs". 

What does the recovery factor measure specifically? 
The following ratio is measured: 

:: Total performance ↔ maximum drawdown 

It answers the question of how much return was achieved per unit of risk taken. 

Example 
Performance: +30% 
Maximum drawdown: -15% 
→ Recovery factor = 2.0 

Classification: 
The strategy has generated twice as much as it has lost in the meantime. 

How should the recovery factor be classified correctly? 

• High recovery factor 
  → efficient recovery, good risk/reward ratio 
• Low recovery factor 
  → high losses in relation to the result achieved 

It is particularly helpful when comparing strategies with different risk profiles. 

Typical misinterpretation 
A high recovery factor means low risks. 

Why this is not true: 
The recovery factor does not take into account 

• how long the recovery took 
• how often drawdowns occur 

These aspects are supplemented by other T2 KPIs. 

Interaction with other KPIs 

The recovery factor should be considered together with: 

• Maximum Drawdown (T1) 
• Drawdown Duration / Time to Recovery (T2) 
• Time under Water (T2) 

Only this combination shows whether a recovery is fast, stable and sustainable. 

Short conclusion 
The recovery factor answers the question: How efficiently was the risk taken converted back into performance? It combines result and risk into a comparable key figure.

Volatility measures how strongly results or performance fluctuate around their mean value. It describes the intensity of movements, not their direction. 

Why is volatility a T2 KPI? 
Volatility provides important information about stability and predictability, but requires explanation and is therefore less often interpreted correctly than T1 KPIs. 

On which measurement dimension is volatility considered? 
Primarily at: 

• Portfolio level  
• Strategy level  

See the section "Measurement dimensions of KPIs". 

What does volatility measure specifically? 
The dispersion of periodic results (e.g. daily or weekly returns) is measured. e.g. daily or weekly returns) around their average. 

High volatility → strong fluctuations 
Low volatility → steady course 

Example 
Two strategies each achieve +10% performance: 

• Strategy A: steady performance 
• Strategy B: sharp swings up and down 

→ Strategy B has higher volatility. 

How to classify volatility correctly 
Volatility is not a measure of risk in the narrower sense, but a measure of unrest and fluctuation intensity. It explains how stressful a performance can be - not how high the loss was. 

Typical misinterpretation 
High volatility is automatically bad. 

Why this is not true: 
Some strategies need volatility to generate returns. The decisive factor is whether fluctuations can be controlled and compensated for. 

Interaction with other KPIs 
Volatility should be considered together with: 

• Drawdown (T1) 
• Time under Water (T2) 
• Recovery Factor (T2) 

This makes it clear whether fluctuations lead to real losses or are only temporary. 

Short conclusion 
Volatility describes the unrest of a strategy. It explains why two identical performances are subjectively perceived completely differently.

Downside volatility only measures the fluctuations in negative returns. In contrast to classic volatility, positive deviations are ignored. 

Why is downside volatility a T2 KPI? 

• Builds directly on volatility (T2) 
• Increases risk precision 
• Remains conceptually simple, but requires explanation 

It is clearly a risk refinement, not a new theory. 

Measurement dimension 

• Portfolio level
• Strategy level 

Example Two strategies fluctuate equally strongly overall. However, one shows significantly stronger downward swings 

→ Downside Volatility makes this difference visible 

Short conclusion 
Downside Volatility only measures what actually hurts - losses 

The loss series measures the number of consecutive losing trades 

Why is it a T2 KPI 

• complements hit rate (T1) with sequence logic 
• psychologically extremely relevant 
• computationally simple 

It is not a statistic in the strict sense, but a performance indicator. 

Measurement dimension 

• Position level 
• Strategy level 

Example 
Hit rate: 55% 
Longest losing streak: 9 trades 

→ shows that good hit rates can still be a burden. 

Short conclusion 
The losing streak shows how much discipline a strategy requires.

The winning streak measures the number of consecutive winning trades 

Why is it a T2 KPI 

• Mirror image of the losing streak 
• Important for expectation management 
• Easy to interpret 

It complements but does not replace a performance indicator. 

Measurement dimension 

• Position level 
• Strategy level 

Short conclusion 
Winning series explain why strategies sometimes seem "easy" - often deceptively so.

This key figure puts the recovery time of a drawdown in relation to the holding period or term.

Why is it a T2 KPI? 

• Extension of the drawdown duration 
• Clearly relational logic 
• Not yet a standardized risk indicator 

Measurement dimension 

• Account level 
• Portfolio level 

Example 

• Term strategy: 36 months 
• Time to Recovery: 9 months 

→ Recovery Time Ratio: 25% 

Short Conclusion 
It shows how much time a strategy spends on "repair work".

This key figure combines hit rate and profit/loss ratio 

Why is it a T2 KPI? 

• Connects two T1 KPIs 
• Very intuitive 
• No external theory required 

Measurement dimension 

• Strategy level 

Example 

• Hit rate: 35% 
• Ø profit twice as high as Ø loss 

→working asymmetric model 

Short conclusion 
The hit-to-payoff balance explains why low hit rates can be profitable.