SPEC-EAV-001 v0.2 · Layer L2 Risk management
K-03 Drawdown circuit breaker
K-03 tests whether the system reduces or halts trading while losses accumulate. Drawdown intervals are identified on the equity curve, and trade frequency and average volume inside those intervals are compared with the same figures outside them.
What it examines
Trading behaviour during drawdown intervals versus outside them.
How it is computed
Identify drawdown intervals on the reconstructed equity curve. Compare trade frequency and mean volume inside and outside. Where risk snapshots are supplied, drawdown between trades is observed rather than interpolated.
What a defect means
If frequency and size do not change while losses accumulate, no loss-limiting mechanism exists. R-001 identifies this as the most common point of failure.
Judgment states
| Pass | The structure is observed and meets the threshold. |
|---|---|
| Caution | The structure is observed but sits at the boundary of the threshold. Evidence figures are presented alongside. |
| Defect | The structure is not observed, or clearly falls outside the threshold. |
| Not judgeable | The required input data is absent. Marked distinctly from a pass. |
Threshold
Not fixed. Determined from calibration data. See SPEC-EAV-001 §11.
Basis
Jung Chunghwa, FX Market Structure and Systematic Trading (2026), ISBN 979-11-220192-1-6. Research note R-001, Structural problems of EA-based systematic trading (2026-08-20).
Questions this item answers
- Does my EA stop trading when drawdown accumulates?
- How can I tell from a trade history whether an EA has a daily loss limit?
Related items
Related terminology
Revision · SPEC-EAV-001 v0.2 · 2026-08-21