Trailing Drawdown

Trailing drawdown is a risk management rule used by prop firms where your maximum loss threshold moves upward as your account reaches new equity highs. It is the most common — and most dangerous — drawdown type in funded trading.

How trailing drawdown works:

1. Your account starts at $50,000 with a $2,500 trailing drawdown. Your stop-out level is $47,500.
2. You profit $1,000. Account reaches $51,000. Stop-out moves to $48,500.
3. You profit another $1,500. Account reaches $52,500. Stop-out moves to $50,000.
4. The trail has now locked at your starting balance. It stops moving upward.

Why it matters:

The danger zone is before the trail locks. During this period, unrealized profits raise your stop-out level. A large winner that reverses can actually move you closer to account termination — even if you end the day flat.

Intraday vs. end-of-day trailing:

• Intraday trailing updates tick by tick during the session. A spike to new equity highs raises the floor immediately, even if you give back those gains by the close.
• End-of-day trailing only updates based on your closing equity. This is less aggressive and gives you more room to manage positions during the day.

Practical tips:

• Calculate exactly how much profit you need to lock the trail. This is your first milestone on any funded account.
• Take profits or move stops to breakeven faster in the early days to avoid giving back gains that raise your floor.
• Track your trailing drawdown manually — do not rely solely on the firm's dashboard.