Total drawdown and daily drawdown are different

Imagine a $100,000 account. A strategy shows 7% maximum historical drawdown, while the program allows 10% maximum loss and 5% daily loss. It looks compatible — until intraday equity falls beneath the daily threshold. The breach has already happened even if the trade later recovers.

Practical risk formula Firm limit − stress equity drawdown − execution reserve The reference equity and reset time are defined by the individual program’s rules.

What a basic tester may miss

Close-to-close tests hide the path inside the bar. A daily candle may end almost unchanged while the position experienced a deep floating loss before close. This matters for systems that hold trades, average in, or trade correlated instruments.

  • Check intraday equity on M1 or tick data.
  • Include commissions, spread expansion and swaps.
  • Match the daily reset to the firm’s time zone.
  • Measure total portfolio stress, not each trade in isolation.

Example: a $100K account

Event Balance Equity Status
Start of day $102,000 $102,000 Limit: $97,000
Open position $102,000 $97,200 $200 remaining
Spread expansion $102,000 $96,950 Breach
Later recovery $103,000 $103,000 Too late

Build in a buffer

If the daily limit is 5%, do not allocate all 5% to the robot. An internal limit of 1.5–2.5% leaves room for slippage, unexpected spread expansion and rising correlation. An evaluation target is never a reason to raise risk.

Practical rule

Find the worst historical intraday drawdown first. Then add a reserve, run a Monte Carlo reordering of trades, and only then decide whether the account size and format are suitable.

What 1-Step, 2-Step and Instant change

The number of stages describes a path to funding, not a strategy’s safety. One-step programs may use stricter trailing mechanics; instant accounts may add consistency or payout constraints. For an algorithm, the drawdown formula and the worst-day scenario matter most.

Conclusion

Before buying a challenge, move the program rules into your own risk model. If a test cannot reproduce daily reset and open equity, it cannot answer the key question: can this system survive the real operating environment?