How to protect your trading account from drawdown

Prop traders often find themselves in a Drawdown on a funded account at a certain point in their forex trading careers. When you are trading for a prop firm, it is important to respect the drawdown limits (Max Loss and Max Daily Loss).

Recovering from a drawdown on a prop firm account is much harder and different from a personal account since the amount allowed to lose is limited from 8-12% (Max Loss). You can find the video comparison between the Prop Trading account and the Personal forex trading account here.

In the following article, you can find a solution that will protect you from hitting the Max Daily Loss limit, which is from 5-6% on average. If we check some Most Popular prop firms, Max Daily Loss at E8 Markets and FundedNext is 5% and at The Funded Trader is up to 6%.

Let’s check what the drawdown actually is:

Types of drawdowns

Relative Drawdown and Absolute Drawdown

One of the keys to success in trading is in understanding the difference between relative and absolute drawdown.

Many prop firms will calculate the drawdown allowed on a fixed basis (for example, FTMO). A fixed amount of money the trader is allowed to lose is calculated from the initial account balance. This is known as absolute drawdown.

Still, some prop firms will ask you to respect a relative drawdown, where the stop-out level trails as your account grows and is calculated every time the highest equity point is reached. Relative drawdown keeps the trader from compounding the account and increasing the lot size used.

Example of relative drawdown: Let´s say a prop firm has a 5% relative drawdown on their accounts. On a $100K account, the maximum amount of money to be lost is $5000, being $95000 at the stop out or termination level.

But when you make a profit of, let’s say $200, your new stop-out level is adjusted to $97000, always allowing you to lose only $5000. In Absolute Drawdown, on the other hand, your stop out level stays the same $95000.

How to protect your account from drawdown?

Equity Sentry EA is software for traders which closes all open positions and closes all open orders in specific situations.  The primary function of the Equity Sentry EA is to allow Forex traders set a “Hard Stop” level to protect the account from unexpected drawdowns. Also, it has other additional useful features like “Evergreen Profit Target” and “On Timer Actions.”

Equity Sentry EA is designed to monitor MT4 account 24/7 and perform specific operations and safety procedures when predefined conditions are met.

When market price declines to a particular level ESEA will close all open positions and disable all Expert Advisors even if you use a trading robot which opens new orders immediately after old ones get closed. ESEA will shut down other EAs before closing positions eliminating the chance of any new positions being opened.

Equity Sentry EA is probably the only app for MT4 to prevent other EAs from opening new trades after the Hard Stop is triggered.

With the ESEA you can keep the drawdown low and not worry that your manager or some Forex trading robot will blow your account.

Also, ESEA can monitor not only open positions (floating profit/loss) but also closed trades too. It means ESEA can detect series of closed losing trades automatically and take necessary security actions.

How does work Equity Sentry EA?

Below you can find a 1h+ long video about Equity Sentry EA, where you can find all the useful information.