Daily Drawdown Rules: The Complete Guide

Daily drawdown is the most common reason for challenge failure. Understanding it perfectly is essential for every prop firm trader.

What is Daily Drawdown?

It's the maximum amount you can lose in a single day. Breach it once = instant account termination.

• Typical limit: 4-5% of starting balance
• Example: $100K account with 5% daily drawdown = $5,000 max daily loss
• Resets at a specific time (varies by broker)

How Daily Drawdown is Calculated

Method 1: Balance-Based (More Common)

Calculated from your balance at day start:

• Starting balance today: $102,000
• 5% daily drawdown: $5,100
• Breach level: $96,900

Method 2: Equity-Based

Includes unrealized (floating) P&L:

• Your equity (not balance) cannot drop 5% below day start
• Open trades count against this
• More restrictive

When Does Daily Drawdown Reset?

Varies by firm:

• FTMO: Midnight server time
• The5ers: Midnight server time
• E8 Funding: 5PM EST
• Always check your specific firm's rules

Protection Strategies

1. Set a personal limit: 2-3% max, not the full 5%
2. Use stop losses: Always. No exceptions.
3. Calculate before trading: Know your max loss per trade
4. Stop after 2 losses: Take a break, reassess
5. Track intraday P&L: Know where you stand

Common Mistakes

• ❌ Not knowing if it's balance or equity based
• ❌ Not knowing when daily reset happens
• ❌ Revenge trading after early losses
• ❌ Risking 2%+ per trade (too high)
• ❌ Trading near the end of the day with limited buffer