Trailing drawdown
Also known as: trailing max drawdown, end of day trailing drawdown, intraday trailing drawdown
Trailing drawdown: Trailing drawdown is a maximum loss limit that rises as an account reaches new highs, staying a fixed distance below the highest balance or equity reached, and never falls.
How does trailing drawdown work?
Each time the account sets a new high, the floor moves up by the same amount; when the account falls, the floor stays where it is. Firms differ on two details:
- End-of-day trailing drawdown: the floor is updated once a day, from the highest closing balance.
- Intraday trailing drawdown: the floor can move with every new equity high, including unrealised profit on open trades.
Some firms stop the floor once it reaches the initial balance: prop firm drawdown rules.
Why does trailing drawdown matter?
Because the floor follows the account’s high, the room to it never exceeds the drawdown allowance. Giving back recent profits can therefore breach the limit even when the account is still above its starting balance; a static drawdown would leave more room in that case.
Worked example
Illustrative only, assuming the floor does not stop at the initial balance: a $100,000 account with a $10,000 end-of-day trailing drawdown has its best close at $113,000, so the floor rises to $103,000. If the account then falls to $102,900, it breaches the limit while still showing a $2,900 profit on the initial balance.
Sources
- Trading Objectives, FTMO
Learn more
- Prop Firm Drawdown Rules: Static vs Trailing Drawdown Explained
Prop firm drawdown rules explained: daily drawdown, maximum drawdown, static vs trailing and end-of-day trailing, balance vs equity, with worked examples.
- What Is a Prop Firm? How Prop Trading Firms Work
What a prop firm is and how prop trading firms work: challenge fees, prop firm evaluations, funded and simulated accounts, profit splits, rules and risks.
Related terms
- Static drawdown
Static drawdown is a maximum loss limit fixed at a set level below an account's initial balance; unlike trailing drawdown, it does not rise when the account makes money.
- Equity drawdown
Equity drawdown is the fall in an account's equity, its balance plus floating profit and loss on open trades, from a reference level such as the starting balance or a previous high.
- Drawdown
A drawdown is the decline in an account's value from a peak to a subsequent low, usually expressed as a percentage of the peak.