What Is Forex Robots Drawdown

Many forex traders amazingly enough don't know what account drawdown is

. Even worse, they are not aware that an account drawdown of over 30% may be the death sentence of the trading account itself. So what is drawdown? How does it effect your trading account? What about the drawdown of a forex trading robot?

The drawdown in simple terms is the maximum amount of money that you lose while trading. This is usually expressed as a percentage of your total trading equity at any given time and refers to the decrease in the trading account equity from a trade or a series of trades. No experienced trader waits for that one big winning trade, because it means he is gambling not trading. To continue to be successful, a good trader concludes a number of profitable trades with good money management techniques to keep his drawdown at low levels.

It is evident that a drawdown of over 30% gets very difficult to recover your initial capital. 18% is the maximum I would accept it regarding forex trading robots. You need to make basically 100% profit to get back to your initial invested sum of money.

This proves that a drawdown of up to 25% is acceptable, but once this percentage increase, it will reduce your chances to recover your losses.

When you are trading manually, the trader is normally aware of the account drawdown. The trader should know the expected drawdowns of the trading systems she is trading. However traders who use just use expert advisors, normally are not aware of the drawdown of the EA.

You will discover that the majority of vendors do not show the drawdown of the expert advisor they are promoting, or worse the drawdown mentioned is based on inaccurate backtests. Although backtests give an indicative value, it is far from accurate. Hence it is advisable that prior purchasing any EA, you analyse carefully the drawdown of the expert advisor being promoted. If the drawdown is just based on backtests, it is recommended to stay away from this EA. Furthermore, a drawdown of over 15% - In addition, use only expoert advisors with a drawdown of 18% or less on a live trading account.

There are a few EAs with a drawdown that falls within this range. They are rare species, but they do exist. These are the only expert advisors you should purchase and eventually trade in your real account. Just forget the rest.

Finally one of the core objective of a forex trader is to keep the drawdown low. In simple terms, let's take the case of a 50% drawdown; it means that you have lost 50% of your money and with the remaining half you need to recover all the losses!

by: Jason Pace

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