The Trailing Drawdown Mechanism
Trailing drawdown is one of the most misunderstood rules in prop trading. It trails your highest recorded account balance or equity.
How trailing drawdown locks in profits
As your balance increases, the absolute minimum value your account can hit trails upward. If you gain $5,000 and then draw down $4,000, you will fail the account even though you are positive from your starting balance.
The Static Drawdown Advantage
Static drawdown is calculated from the initial starting balance of the account and does not move upward as you build profits.
Why traders prefer static drawdowns
Static drawdown allows you to build a buffer. If you gain $5,000, your drawdown buffer increases by that exact amount, giving you more breathing room to execute larger trades.