Drawdown explained: how to read an EA's risk

By Benjamin Lee · Published 2026-10-11 · 1 min read

Drawdown tells you how far an account fell from a peak. It is one of the most useful numbers for judging an EA's risk, and one of the most misread. This guide explains what it measures and how to use it.

What drawdown is

Drawdown is the drop from a previous high point in account value to a following low, shown as an amount or a percentage. If an account rises to 10,000 and then falls to 8,500, the drawdown is 1,500, or 15 percent.

Balance versus equity drawdown

Balance drawdown only counts closed trades. Equity drawdown includes open positions that are currently in loss. Equity drawdown is the more honest number because it shows how deep the account actually went while trades were open.

Maximal drawdown is a past figure, not a limit

The largest drawdown in a backtest or live history describes what already happened. A future drawdown can be larger. Treat the historical figure as a minimum you should be prepared for, not a ceiling.

How to judge whether you can live with it

Ask practical questions before you go live.

Would you keep the EA running through a drawdown of that size, or switch it off in a panic?
Does the lot size you plan to use scale the drawdown to an amount you can accept in money terms?
How long did the recovery take in the test period?

Reducing drawdown

Smaller lot sizes reduce the money drawdown in proportion. Limiting the number of simultaneous trades, using stop losses and avoiding high-impact news also help. Lower risk usually means lower return too, so it is a trade-off, not a free fix.

Frequently asked questions

What is a good drawdown for an EA?

There is no universal number. It depends on your capital and tolerance. Many traders look for a drawdown they could sit through without changing the system.

Where do I see drawdown in MetaTrader 5?

In the Strategy Tester report after a backtest, shown as balance and equity drawdown, absolute, maximal and relative.

Does a low drawdown mean low risk?

Not always. A short test period or a strategy that hides losses in open trades can show a low drawdown that later proves misleading.

Trading foreign exchange, gold and CFDs carries a high level of risk and may not be suitable for all investors. Past performance, backtests and live results do not guarantee future returns. This guide is general education, not financial advice.

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