Why Drawdown Analysis Is Very Important For A Forex Robot?

One of the most important things that you should consider while choosing a forex robot is Drawdown. Drawdown is the percentage an EA loses from its last high point to the next low point. Drawdown should be as low as possible. This gives you an idea how much an EA can lose. What you need to do is to take a look at the Equity Curve of a robot. Get this Guide to Getting Rich with Forex Robots by Rob Casey that shows how to test and optimize any forex robot.

Most robot vendors provide the Equity Curve on the website. Equity Curve shows the amount of money made over a certain period of time. What you want is a curve that slopes upward and is not choppy with lots of ups and downs. Sloping up means the robot is consistently making money. If the Equity Curve is up and down all the time, it means that the robot is highly volatile and it can experience steep drops. These steep drops are what we call the Drawdowns. Now three numbers are very important when you do the Drawdown Analysis. These three numbers are:

1. Max Drawdown,

2. Average Drawdown and

3. Drawdown Recovery.

You need to take a close look at these three numbers when choosing a forex robot. Max Drawdown is the maximum drop that has occured with that robot in the past. It can give you the worst case scenario. Suppose it is 50%. Suppose, you start trading with $ 10,000. This drop can take place right when you start trading with that robot. Imagine losing $ 5,000 on your first trade.

Any EA will have several drawdowns. Suppose, it had four drawdowns. First was 10%, second was 5%, third was 20% and last was again 5%. So, the average drawdown will be 10%. This will be the typical loss that you can experience with that robot. However, the max drawdown in this case was 20% meaning in the worst case scenario, you can lose 20% of the capital in the account.

Drawdown Recovery is the amount of time a robot takes to get out of the drawdown. What you want a short drawdown recovery. Drawdown recovery is the number of trades the robot takes to get into positive again. The sooner the better. When you choose a robot, you need to take a look at these three numbers closely. You need to take a close look at these numbers and if they are not provided by the vendor, you need to ask them to provide these numbers.