- The trailing drawdown will always follow the current balance, which is equal to your profit;
- The drawdown is recorded in real-time during the trading day and includes a commission;
- If your balance decreases – your allowable drawdown remains unchanged;
- If the trader violates the allowable drawdown, the trader’s account is blocked by the administrator. In this case, the trader can make a reset or create a new account.
Trailing drawdown example:
Example #1: A trader has an account of $120,000 it has a maximum trailing drawdown of -$4,000. This means that the maximum you can lose is $4,000 from the maximum profit point at any given time, including open positions. In this case, if your account drops to $116,000, the account will be blocked.
$120,000 - $4,000 = $116,000
Example #2: Let’s say, you started trading and the first trade you did is $500 win. Now your balance is $120,500. In this case, maximum drawdown also moves with your profits, and now the account minimum will be: $116,500.
$120,500 - $4,000 = $116,500
Example #3: Let’s say you have $500 of unrealized profits locked in the trade, and you decided not to pick it up and wait for a bigger move. But after some time, the market goes against you, and you decide to take $250 plus and close the trade. Now, your balance is $120,250, but maximum drawdown is now at $116,500, and here is why: The maximum drawdown will always move -$4,000 from the highest account balance (including unrealized PnL).
$120,250 (Realized PnL) + 250$ (Unrealized PnL) - $4,000 = $116,500