Trailing drawdown: what it is and how it moves
By Bec, futures trader and founder of Wildflower · Updated
A trailing drawdown is a loss limit that follows your account’s highest balance up, a set dollar amount below it, and never moves back down. If your balance falls to that line, the account breaks the rule. So a winning run raises the floor under you, and giving profit back brings you closer to it.
What a trailing drawdown is
A A fall in an account’s balance from a high point. On a funded account, it also names the loss limit the balance has to stay above.More in the glossary is a fall in an account’s balance from a high point. A A proprietary trading firm: a company that lets traders trade its accounts under its own rules. Each firm sets how you get an account, such as by passing an evaluation.More in the glossary account can have a maximum drawdown: a line the balance must stay above. If the balance falls to it, the account breaks the rule.
With a A loss limit that sits a set amount below an account’s highest balance. It moves up with new highs and never moves down.More in the glossary, that line moves. It sits a set amount below the highest balance the account has reached, and it follows that high up. It never moves down. It works like a A stop that follows price as it moves your way, at a set distance, and never moves back.More in the glossary, but for the whole account instead of one trade.
All the numbers on this page are made up to show the idea. Say an account starts at $50,000 with a $2,000 trailing drawdown. The line starts at $48,000. Each firm sets its own amount and its own rules, and they change, so check your firm’s own rules page.
In the pictures, each candle is the account’s balance over one day: where it opened, the highest and lowest it reached, and where it closed.
How a trailing drawdown moves, step by step
1. It starts below you
The account starts at $50,000. The line sits $2,000 below, at $48,000.
2. A new high lifts it
Day 2 reaches $51,500, a new high. The line moves up to $49,500.
3. A fall doesn’t lower it
Day 3 falls to $50,200. No new high, so the line stays at $49,500.
4. The room shrinks
Day 4 falls to $49,600: only $100 above the line.
Day 4 closes at $49,700. That’s only $300 below where the account started, but it’s just $200 above the line, not the $2,000 there was at the start. The profit made on day 2 lifted the line, and giving it back didn’t lower it. In the picture at the top, the same thing happens while the account is still up overall.
Intraday vs end-of-day trailing drawdown
The two main types differ in when the line moves.
Intraday trailing (also called real-time trailing). The line follows the highest balance at any moment in the day, counting trades that are still open. In the pictures, on day 2, an open trade took the balance to $51,800, so the line moved to $49,800, even though the day closed at $50,500.
End-of-day trailing. The line only moves at the end of the day, based on the closing balance. Highs during the day don’t lift it. On the same three days, the line reaches only $48,500.
Same balance, same days, and a different result on day 3. The line moves at different times. Whichever way the line moves, each firm’s rules also say when the balance is checked against it: all through the day, or at another time. More on end-of-day drawdown.
How unrealised profit can move the line
Profit or loss on a trade that’s still open. It becomes realised when the trade closes.More in the glossary is profit on a trade that’s still open. On intraday trailing, it counts. Say the balance starts the day at $50,000, its highest so far, so the line is at $48,000. A trade runs up to $1,500 in profit. The balance, counting the open trade, touches $51,500, and the line moves up to $49,500.
Then the trade turns and closes for $200. The day ends at $50,200, a small gain. But the line stays at $49,500, so the room left is $700, not $2,200. The profit was never banked, but it still moved the line.
On end-of-day trailing, the same day would move the line by only $200, from the closing balance.
When a trailing drawdown stops trailing
An account’s rules can stop the line once it reaches a set level. Traders say the drawdown locks there. The version in the picture stops it at the starting balance.
With our made-up numbers, the line reaches $50,000 once the balance has reached $52,000. From then on it stays at $50,000, however high the balance goes. It now behaves like a static drawdown: a fixed floor, with every new dollar of profit adding to the room.
Whether a line locks, and where, differs from firm to firm. A line can also keep trailing for the life of the account. Each firm sets this out in its own rules.
What counts, and what doesn’t
Reaching the line can count. A rule can be broken when the balance reaches the line, not only when it goes below it. Your firm’s wording says which.
A dip can count, even if the day recovers. Where the balance is checked all through the day, an open trade that takes it to the line breaks the rule, even if the trade comes back.
Fees count. Commissions come out of your balance, and the line is measured against that balance.
The line doesn’t come back down. A losing day brings the balance closer to the line. It never lowers the line.
The amounts are your firm’s. Account sizes, drawdown amounts, and whether and where the line stops all vary. The numbers here are made up.
Often confused with
Static drawdown. A line set once, at the start, that never moves. Read about static drawdown.
Daily loss limit. A cap on how much the account can lose in one day. It starts fresh each day, while a trailing drawdown carries on from day to day. Read about daily loss limits.
Maximum drawdown in a backtest. The largest fall from a high in a test’s results. It’s a measurement of what happened, not a rule. Read about backtest results.
Trailing stop. The same idea for one trade: a stop that follows price your way and never moves back. Read about stop losses.
Watching your drawdown line on Wildflower’s Bot
See how far each account is from its line
When the Bot runs your strategy on a funded account, its Guardrails panel shows which drawdown type applies and how far the balance is from the line, after fees. You enter your firm’s rules from your firm’s own page; Guardrails measures against them and doesn’t decide anything. You can also set your own daily loss and profit limits, which stop new trades for the rest of the day, and choose what happens at a line you set: an alert, no new trades, or closing what’s open. Every line starts empty, and you choose each one.
Try it free on the practice chart. Only pay when you run it through your broker, on a demo or real account.
Common questions
What is a trailing drawdown in simple terms?
A loss limit that follows your highest balance up, a set amount below it, and never moves down. If the balance falls to it, the account breaks the rule.
Does a trailing drawdown ever move down?
No. A losing day moves your balance closer to the line, but the line stays where it is.
What’s the difference between intraday and end-of-day trailing drawdown?
Intraday trailing moves with your highest balance at any moment, open trades included. End-of-day trailing only moves at the close, from the closing balance. More above.
Does unrealised profit count toward a trailing drawdown?
On intraday trailing, yes: open profit can lift the line even if the trade closes for less. On end-of-day trailing, only the closing balance moves it.
When does a trailing drawdown stop trailing?
That’s set by each firm’s rules. A line can stop at a set level, such as the starting balance, or keep trailing for the life of the account.
Is a trailing drawdown the same as a daily loss limit?
No. A daily loss limit caps one day’s loss and starts fresh each day. A trailing drawdown carries on across days.
What happens if my balance reaches the trailing drawdown?
The account breaks that rule. What happens next is set by your firm.
Do fees count toward the drawdown?
Fees come out of your balance, and the line is measured against your balance, so they count.
Is a trailing drawdown the same as a static drawdown?
No. A static line is set once and never moves. A trailing line follows your highest balance up.