Trailing Drawdown Explained: Don't Let This Rule Catch You

Trailing drawdown is the #1 reason traders fail prop firm challenges. Understanding it completely is non-negotiable if you want to get funded.

What is Trailing Drawdown?

Unlike static drawdown (fixed from starting balance), trailing drawdown follows your profits up but never goes back down.

Example:

• Starting balance: $100,000
• Trailing drawdown: 5% ($5,000)
• Breach level starts at: $95,000

Now let's say you make $3,000 profit:

• New high: $103,000
• New breach level: $98,000 (trails up with profits)
• You now have LESS room to drawdown than when you started!

Trailing vs Static Drawdown

Feature	Trailing Drawdown	Static Drawdown
Breach level	Moves up with profits	Fixed from start
Difficulty	Harder	Easier
Common in	Most firms (challenges)	Funded accounts

Strategies to Manage Trailing Drawdown

1. Lock In Profits

After a winning trade, reduce risk on next trades. Your drawdown buffer is now smaller.

2. Don't "Round Trip"

If you're up $2,000, don't give it all back trying to make more. Walk away green.

3. Track Your Real Breach Level

Know exactly where your current breach level is at all times. Many platforms show this - use it!

4. Use the EOD (End of Day) Rule

Some firms only update trailing drawdown at end of day. Understand how YOUR firm calculates it.

Firms with Trader-Friendly Drawdown

• FTMO: Trailing until you hit initial balance, then becomes static
• The5ers: Static drawdown from the start
• E8 Funding: Trailing only during challenge phase