Recommended 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 trader dreams of winning one big trade, since in this case it will be gambling and not trading. Instead to be successful, a trader makes consistent profitable trades with effective money management techniques hence keeping the drawdown low.

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.

Thus, this shows that a drawdown in your account of upto 25% is manageable, but once you go over this figure, it becomes very difficult to recover.

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.

Even worse, most vendors hide the drawdown of the expert advisor that they are selling, or the drawdown quoted is based on some 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% - 18% is the maximum I would go as regards to forex trading robots.

There are a few EAs with a drawdown that falls within this range. Such cases are rare but do exist. These are the only EAs you should buy and let them trade for you with your real money. Just forget the rest.

At the end of the day one of the main objectives 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!

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com