Drawdown rules: static, trailing close and trailing EOD
A prop firm calculates your drawdown one of three ways. Each method explained with a small worked example.
By NKTrades
A prop firm calculates your drawdown one of three ways. Which one applies is set in your challenge's rules (Edit rules in the action menu). Check it against your firm, since it makes a real difference in how strict the floor is.
Static drawdown
The floor is fixed at the starting balance minus the max drawdown, and doesn't move as your profit grows.
Example: a $50,000 account with a $2,000 max drawdown has a floor at $48,000. Whether you're up $500 or $3,000, dropping below $48,000 is a breach.
Trailing drawdown (per closed trade)
The floor climbs with every closed trade that sets a new peak in your balance. Only closed trades count: an open position that's briefly higher doesn't move the floor.
Example: the same $50,000 account with a $2,000 drawdown. Close a trade for $1,000 profit and your balance is $51,000, so the floor climbs to $49,000. From then on, the next loss limit is measured from that new floor, not the starting balance.
Trailing drawdown (end of day)
Here only your balance at the end of the trading day counts. Win or lose during the day, and the floor only moves once the day is closed out.
Example: if your day ends at $52,000, the floor moves to $50,000 the next day (with a $2,000 drawdown), regardless of what your balance did in between.
What happens between two closed trades, or between two end-of-days, isn't measured: an import carries no price data inside a trade, so trailing on unrealized profit during the day isn't something the journal can work out.
Not sure which rule applies to you? Send us a message through support.
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