Trailing drawdown refers to the dynamic adjustment of a trader’s maximum allowable loss based on the highest equity point reached during trading. The key difference in this model is that every percentage of profit you make is subtracted from your initial drawdown limit (6% in this case), until the drawdown reaches your initial account balance. Once the drawdown reaches this level, it locks and no longer adjusts (even after withdrawal or account reset).
Examples of Trailing Drawdown for $25K, $50K, and $100K Accounts
Example 1: $25,000 Account
Starting Balance: $25,000
Initial Drawdown (6%): $1,500
Initial Maximum Drawdown Figure: $25,000 - $1,500 = $23,500
Trade Scenario:
The trader enters a trade, and the account’s equity increases by $1,250 (5% unrealized profit). The trailing drawdown adjusts accordingly.
New Equity: $25,000 + $1,250 = $26,250
Profit as Percentage: 5%
New Drawdown: 6% - 5% = 1%
New Drawdown Amount: $25,000 × 1% = $250
New Drawdown Limit: $25,000 - $250 = $24,750
Thus, the new maximum drawdown limit is $24,750. If the trader's equity falls back to $25,000, they can only lose $1,500 in total from $26,250 before hitting the drawdown limit.
Example 2: $50,000 Account
Starting Balance: $50,000
Initial Drawdown (6%): $3,000
Initial Maximum Drawdown Figure: $50,000 - $3,000 = $47,000
Trade Scenario:
The trader enters a trade, and the account’s equity increases by $1,500 (3% equity increase). The trailing drawdown adjusts accordingly.
New Equity: $50,000 + $1,500 = $51,500
Profit as Percentage: 3%
New Drawdown: 6% - 3% = 3%
New Drawdown Amount: $50,000 × 3% = $1,500
New Drawdown Limit: $50,000 - $1,500 = $48,500
Thus, the new maximum drawdown limit is $48,500. If the trader's equity falls back to $50,000, they can only lose $3,000 in total from $51,500 before hitting the drawdown limit.
Example 3: $100,000 Account
Starting Balance: $100,000
Initial Drawdown (6%): $6,000
Initial Maximum Drawdown Figure: $100,000 - $6,000 = $94,000
Trade Scenario:
The trader takes a position that moves into $5,000 profit (5% unrealized gain). The trailing drawdown adjusts accordingly.
New Equity: $100,000 + $5,000 = $105,000
Profit as Percentage: 5%
New Drawdown: 6% - 5% = 1%
New Drawdown Amount: $100,000 × 1% = $1,000
New Drawdown Limit: $100,000 - $1,000 = $99,000
Thus, the new maximum drawdown limit is $99,000. If the trader's equity falls back to $100,000, they can only lose $6,000 in total from $105,000 before hitting the drawdown limit.