Download the Adobe .pdf report.

Winton Capital offers clarity on drawdown in trading:

As a description of an aspect of historical performance, drawdown has one key positive attribute: it refers to a physical reality, and as such it is less abstract than concepts such as volatility. It represents the amount by which you are less well off than you were; or, put differently, it measures the magnitude of the loss an investor could have incurred by investing with the manager in the past. Managers are obliged to wear their worst historical drawdown like a scarlet letter for the rest of their lives. However, this number is less straightforwardly indicative of manager quality as is often assumed. The seeming solidity of the drawdown statistic dissipates under closer examination, due to a host of limitations which are rarely explored sufficiently when assessing its significance as a guide to the future performance of an investment.
The Pros and Cons of “Drawdown” as a Statistical Measure of Risk for Investments
By David Harding, Georgia Nakou & Ali Nejjar
Winton Capital Management

The first is that, all other things being equal, drawdowns will be greater the greater the frequency of the measurement interval. The maximum drawdown will be greater on a daily time series than on a weekly one, and weekly will be greater than monthly. Investments that are marked to market daily, such as managed futures, may thus appear at a disadvantage to less frequently valued investments (e.g. hedge funds).
The Pros and Cons of “Drawdown” as a Statistical Measure of Risk for Investments
By David Harding, Georgia Nakou & Ali Nejjar
Winton Capital Management

The second is that the maximum drawdown will be greater for a longer time series, so that managers with longer track records will tend to have deeper maximum drawdowns. This effect would have perverse consequences if the raw maximum drawdown were used to measure quality across the board, as, in general, managers that have survived longer have given evidence of professional competence through overcoming such adversities.
The Pros and Cons of “Drawdown” as a Statistical Measure of Risk for Investments
By David Harding, Georgia Nakou & Ali Nejjar
Winton Capital Management

In order to make drawdown a more informative statistic, we must correct for track record length, measurement interval and volatility; we must take account of the error as well as making sure that we understand the nature of the return generating process (i.e. that it is reasonably parametric). Though some analysts correct for some of these factors, the conventional cursory use of drawdown as a statistic fails most or all of these tests, making it worse than useless.
The Pros and Cons of “Drawdown” as a Statistical Measure of Risk for Investments
By David Harding, Georgia Nakou & Ali Nejjar
Winton Capital Management

NOTE: If you want to learn about trend following trading in general there is one definitive text: the bestselling classic "Trend Following: How Great Traders Make Millions in Up or Down Markets" by Michael Covel. If you want to learn about the most famous group of trained trend following traders, the Turtles and their teacher Richard Dennis, "The Complete TurtleTrader" by Michael Covel is the only complete biography (with all of the Turtle rules) available. If you want to learn trend following techniques and systems through advanced home study and or seminars click here.