Can anyone please explain how the backtest is possible to carry on after over 100% drawdown? I use margin. (see picture below)
Consider the following scenario:
- You start with $1000 cash in your account and set Account Margin to 50% (2:1 leverage)
- You Buy $2000 worth of stock using $1000 cash and $1000 margin
- The stock price falls by 60%
If you were to close your position, the $800 of proceeds would not cover the $1000 of margin that you used. From a practical perspective (not necessarily the same as AmiBroker's internal accounting), your cash balance would be -$200 and I believe the backtest would stop. In live trading, your broker would likely issue a margin call for at least $200.
However, if you do NOT close your position then the backtest continues. If the stock price recovers sufficiently, then your drawdown will be less than 100%, allowing you to close your positions and continue trading with your remaining capital.
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The other scenario is making short trades. The price goes up 2x or more this means that you are losing 100% of your cash at some point. Brokerage accounts that allow shorting must have $100K cash and they usually have account margin of 50%, so your buying power is actually 200% of cash. So the broker may issue margin call, but this situation is definitely possible.
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