How do I calculate my current drawdown correctly?

Open MT5 and navigate to View → Terminal → Account History. Find the highest balance figure recorded in the account history — this is your equity peak. Your current drawdown is: (Peak Balance − Current Balance) ÷ Peak Balance × 100. Note that if you have open positions, "balance" and "equity" will differ. Use equity (balance + unrealised P&L) for a true current drawdown figure.

Should I close all open positions during a drawdown?

Almost never — and only after completing the full drawdown protocol. Closing positions during a drawdown crystallises losses and potentially interrupts the EA's recovery mechanism at precisely the wrong moment. Many EAs use a failed-breakout recovery system that adds positions or adjusts targets on losing trades. Closing positions manually mid-sequence destroys this logic. The only exception is if the EA has a genuine malfunction (executing in a continuous loop, opening unlimited positions, or showing clearly erroneous behaviour).

How long should I wait before deciding the EA has permanently failed?

A minimum of 30 days after the drawdown peaks before making a definitive judgement on strategy failure. Gold markets have multi-week regime cycles — a strategy that underperforms during a specific regime (e.g., a trending strategy in a ranging market) can recover rapidly when conditions shift. The exception is if the drawdown is still accelerating at 30 days, or if it has exceeded the historical max drawdown by more than 15 percentage points without any recovery.

What should I document during a drawdown event?

Capture: the date and time the drawdown began, the equity peak and lowest equity point, what news events (if any) coincided, the spread levels during the worst periods, the exact trades in the losing sequence (direction, entry time, exit time, pip size), and the decision you made (continue/pause/stop) and your reasoning. This documentation serves two purposes: it gives you data to share with the EA developer, and it gives you a reference for future drawdowns so you can make better decisions next time.

Is reducing lot size during a drawdown a good strategy?

It depends on the context. If you are within the EA's normal drawdown range and simply uncomfortable with the dollar amount, reducing lot size to a psychologically manageable level is legitimate — it sacrifices potential recovery speed for peace of mind. If the drawdown is approaching or exceeding historical limits, a temporary lot reduction also protects capital during investigation. What should never happen is increasing lot size during drawdown ("averaging down" or "doubling up") — this is how small drawdowns become account-ending ones.

Drawdown Response Protocol

Complete these steps in order. Do not skip ahead. The protocol only works if followed sequentially.

Home / Questions / What to Do When Your EA Hits Drawdown

What Should I Do After My XAUUSD EA Hits Drawdown?

Quick Answer

Follow the protocol above in order. Do not make any changes until you have measured the drawdown accurately and compared it to the EA's historical maximum. If you are within the stated range — do nothing. If you are approaching or exceeding the historical max — reduce lot size and investigate. Document everything. Most drawdown-related mistakes happen in the first hour of panic, not in the drawdown itself.

The Psychology of Drawdown: Why Traders Make Bad Decisions

Drawdown triggers a specific pattern of emotional response that is almost universal. First comes discomfort — watching the balance decline below its recent peak. Then comes the urge to "do something" — the intervention impulse that whispers "maybe I should close this trade" or "maybe the EA has stopped working". Then, if the drawdown deepens, comes genuine fear — and fear-driven decisions in trading are almost always bad ones.

The problem is not that drawdown is occurring — all active strategies have drawdown periods. The problem is that the emotional response to drawdown leads traders to break the statistical chain that the strategy depends on. An EA with a 60% win rate needs to execute hundreds of trades for that win rate to manifest. Stopping it in month two because of a temporary drawdown invalidates the entire statistical premise.

The protocol above exists specifically to interrupt this emotional cascade. By converting an emotional experience ("my account is down") into a process ("complete these five steps"), you create the space to make a rational decision instead of a fear-driven one.

Drawdown Triage Tool

Answer these four questions to reach a structured decision about what to do.

1. How large is the current drawdown?

2. Is this within the EA's stated max drawdown?

3. Did a major news event trigger it?

4. Has the EA recovered from similar drawdowns before?

How Built-In Recovery Logic Changes the Equation

Not all EAs handle losing trades the same way. Basic EAs simply close losing trades at the stop loss and move on, leaving recovery entirely to future winning trades. More sophisticated systems include logic specifically designed to recover from failed setups.

Goldie Razor V2.8.4 includes a failed-breakout recovery system. When a breakout trade fails and hits its stop loss, the EA does not simply forget about it — it applies recovery logic to subsequent positions in the same session, adjusting targets and position management to compensate for the loss from the previous failed signal. This means the EA itself is actively working to recover from individual losing trades, reducing the depth and duration of losing sequences.

When an EA has built-in recovery logic, the case for trader patience during drawdown is even stronger. Intervening manually — closing positions or pausing the EA mid-recovery — interrupts the recovery mechanism at exactly the wrong time.

Pausing vs Stopping: The Distinction That Matters

Pausing an EA means temporarily halting new trade entries while keeping existing positions open and the EA loaded on the chart. Stopping means closing the EA entirely, potentially closing open positions. These are meaningfully different actions with different consequences.

Pause

When: Drawdown approaching historical max, abnormal news event, uncertainty about market conditions

Effect: Stops new entries, keeps recovery logic active on any open positions, allows you to observe without additional exposure.

Stop

When: Drawdown exceeds historical max significantly, clear EA malfunction, broker environment change, need for investigation

Effect: Terminates all EA activity. Manual closure of open positions may crystallise losses that recovery logic would have resolved.

What Should I Do After My XAUUSD EA Hits Drawdown?

The Psychology of Drawdown: Why Traders Make Bad Decisions

Drawdown Triage Tool

How Built-In Recovery Logic Changes the Equation

Pausing vs Stopping: The Distinction That Matters

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