Risk management
Your Expert Advisor Is in Drawdown: A Calm Decision Framework for What to Do Next
By Benjamin Lee · Updated · 6 min read
Every Expert Advisor goes into drawdown. The hard part is not knowing that, it is deciding what to do when the account is down and every instinct says to change something. People switch EAs after one bad week, raise the lot size to win it back, or ignore a real problem because they hoped it would pass. This guide gives you a framework to decide calmly: first check whether anything is broken, then compare the drawdown with what was tested, then choose to hold, reduce or stop using rules you set in advance.
Key takeaways
- A drawdown is not a failure by itself. Compare it with the EA's tested range before you react.
- First rule out a technical problem: connection, settings, spread and broker changes.
- Never increase the lot size to recover a loss. That is how a drawdown becomes a wipe-out.
- Decide your reduce and stop levels before the EA starts trading, so you do not decide while stressed.
- Document each change. If you change three things at once you learn nothing.
Drawdown is part of how EAs work
Drawdown is the fall from a previous peak in balance or equity. Every strategy has losing runs, and a backtest report shows the maximum drawdown that happened in the tested period. Our guide to drawdown explains the figures. A drawdown within the tested range, with the EA behaving as designed, is uncomfortable but expected. A drawdown beyond the tested range, or one with unusual behaviour, needs investigation.
Remember the arithmetic of recovery. A 10 percent loss needs about an 11 percent gain to recover, 20 percent needs 25, and 50 percent needs 100. The deeper the hole, the harder the climb, which is why the early decisions matter most. The drawdown calculator shows the numbers.
Step 1: Rule out a technical problem
Before you judge the strategy, check that the EA is running the way you set it. Many drawdowns that look like strategy failure are setup faults.
- Settings. Compare the live inputs with the setfile you intended to use. A reset or a wrong load changes the lot size or the filters.
- Symbol and timeframe. Confirm the chart is the one in the manual.
- Connection. Check for gaps in the Experts and Journal tabs, disconnects and requotes.
- Spread and costs. Compare the current spread and commission with the test. A broker change or a news period can double costs.
- Conflicts. Look for another EA or manual trading on the same symbol using the same magic number.
- Account mode. Confirm the account is hedging or netting as the EA expects. See hedging versus netting.
- Version. Check that you are running the version you tested, and note any broker or platform updates.
Step 2: Compare with the backtest and the forward test
| What you see | What it may mean | Next move |
|---|---|---|
| Drawdown within the tested range, trades look normal | A normal losing run | Hold at the planned size, keep monitoring |
| Drawdown near the tested maximum | At the edge of the tested range | Reduce size or tighten your stop rule |
| Drawdown beyond the tested maximum | Market conditions may be outside what the EA handled, or the test overstated it | Reduce sharply or stop and investigate |
| Losses from trades the backtest would not have taken | A setting, data or broker difference | Fix the cause before resuming |
| Many small losses, fewer winners than expected | A regime change, or costs larger than tested | Compare costs and conditions; consider pausing |
| One very large loss | Gap, slippage, news or a missing stop | Check the trade log and the stop loss logic |
Rerun the Strategy Tester on the recent period with your broker's real-tick data and costs, and compare the result with your live account. If the tester loses in the same way over the same period, the EA is behaving as designed and the period was hard. If the tester shows profit and the live account does not, the difference is execution, costs or a fault. Our backtest versus live guide explains the usual causes.
Step 3: Decide with rules you wrote earlier
The worst time to design a rule is in the middle of a drawdown. Write them when the account is calm. A simple structure uses levels measured from the account's high-water mark.
| Drawdown from peak | Action |
|---|---|
| Up to half of the tested maximum | Continue as planned, review weekly |
| Half to the full tested maximum | Review the logs and settings, consider halving the lot size |
| Beyond the tested maximum | Stop new trades, investigate, retest on demo before resuming |
| Your personal limit (for example the figure you wrote at the start) | Stop the EA, review it with fresh eyes after a break |
What not to do
- Do not change several inputs at once. You cannot tell which one helped or hurt.
- Do not re-optimise on the last few weeks to fix the loss. That fits noise. See overfitting.
- Do not close losing positions by hand and leave the winners to the EA unless the manual says so. You break the strategy's balance.
- Do not add a second EA to make up for the first. You add risk, not edge.
- Do not switch EAs after every drawdown. No system gets a fair sample that way.
- Do not ignore a drawdown that is far outside the tested range.
A calm routine for a drawdown week
Step 1: Pause and record the facts
Write the date, the balance, the equity, the drawdown from peak and the number of open trades.
Step 2: Check the technical items
Go through the list above and fix anything that is wrong.
Step 3: Compare with the test
Locate the live drawdown on the backtest's equity curve and the maximum drawdown figure.
Step 4: Choose from your plan
Hold, reduce or stop according to the rules you set earlier.
Step 5: Change one thing, if anything
Record the change and review after a meaningful number of trades.
If you decide to stop, our guide on when to turn off your EA covers how to do it without leaving positions unmanaged, and the MT5 Expert Advisors guide shows how this fits the wider routine.
Sources and further reading
- MetaTrader 5 Help: Testing ReportWhat each figure in the tester's report means, including drawdown.
- MetaTrader 5 Help: Strategy TestingThe Strategy Tester: testing modes, settings and forward testing.
- Bailey, Borwein, López de Prado and Zhu: Pseudo-Mathematics and Financial Charlatanism (Notices of the AMS, May 2014)A plain-language account of how backtest overfitting produces strategies that fail out of sample.
Frequently asked questions
How much drawdown is normal for an EA?
It depends on the strategy. Compare your live drawdown with the maximum in a real-ticks backtest of the same EA and settings. Within that range it is expected, beyond it needs investigation, and in all cases it must be within what you can afford.
Should I stop my EA when it is losing?
Not automatically. First rule out a technical problem, then compare with the tested range. Stop when the drawdown breaches a limit you wrote in advance or when you find a fault you cannot fix.
Can I increase the lot size to recover losses?
No. Increasing size after a loss raises the chance that the next losing run ends the account. Keep the risk percentage fixed.
How do I know if the EA stopped working?
Compare live results with a backtest on the same recent period. If the backtest also loses, the market period was hard for the strategy. If the backtest wins and the live account does not, look for costs, execution or a fault.
Should I re-optimise after a drawdown?
Be careful. Optimising on the latest weeks usually fits noise. If you re-optimise, use a long period, test on unseen data and forward test on demo before going live.
Expert Advisors in these styles
Apply the checks above to any of these before you buy: read the manual, run your own backtest, and start on demo.
Keep reading
- Risk and sizingHow Much Money Do You Need to Run an EA? Euro ExamplesThe smallest account that can run an Expert Advisor safely: the 1% risk method, minimum lots on EURUSD and gold, margin, costs and euro examples from 500 to 10,000.
- BacktestingHow to Backtest an EA in MT5 ProperlyLearn how to backtest an Expert Advisor in MT5 the right way: tester modes, spreads, delays, optimisation, walk-forward checks and the red flags to avoid.
- BacktestingHow to Read an MT5 Backtest ReportLearn to read an MT5 Strategy Tester report line by line: drawdown, profit factor, Z-score, trade quality, robustness checks and the red flags that expose a weak EA.
- Pillar guideMT5 Expert Advisors: The Complete Guide for BeginnersEverything about MetaTrader 5 Expert Advisors in one place: how they work, strategy types, risk, backtesting, buying safely, gold, EURUSD, prop firms and Europe.