Trailing Drawdown

Trailing drawdown is a maximum loss limit that moves upward as the account's equity hits new highs. Unlike a static drawdown — which stays fixed against the starting balance — a trailing limit "trails" the high-water mark by a defined distance, typically 4–10% of the account size.

The mechanic looks simple but trips up most new funded traders. Every new equity peak shifts the loss threshold upward by the same amount, meaning a trader who reaches +5% on a 5% trailing limit is effectively at breakeven against the threshold even though the account is up. A subsequent pullback that would have been comfortably inside a static limit can immediately breach a trailing one.

Implementation varies. Some firms calculate the trailing high against end-of-day equity, so intraday spikes don't count. Others trail against real-time peak equity including unrealized PnL — much harsher. A handful of firms (FTMO and similar) "lock" the trailing drawdown to the initial balance once the account is far enough in profit, converting it back into a static limit. Always confirm which variant a firm uses before sizing positions.