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Lesson 3 of 8 · 2 min

Drawdown rules

Static, intraday trailing and end-of-day trailing drawdown — with examples. Read this before you buy anything.

The drawdown rule is where most prop accounts die. Three versions are common.

1. Static drawdown

The loss limit is fixed from your starting balance and never moves.

Start $50,000 with a $2,000 static drawdown → the account fails at $48,000, forever.

Easiest to manage. Less common.

2. Intraday trailing drawdown

The limit follows your highest account value — including open, unrealised profit — in real time.

Start $50,000, $2,000 trailing → limit at $48,000. A trade is open and up $1,000 (equity $51,000) → limit moves to $49,000. The trade comes back to breakeven → equity $50,000, but the limit stays at $49,000.

You "lost" $1,000 of room without losing a cent. Strict, and the hardest to trade.

3. End-of-day (EOD) trailing drawdown

The limit trails your closing balance at the end of each day, not open profit during the day.

Close day one at $51,000 → limit moves to $49,000 for tomorrow. Intraday swings don't move it.

More forgiving than intraday trailing.

The trailing "lock"

At many firms the trailing limit stops trailing once it reaches the starting balance (or starting balance plus a small buffer). After that it behaves like a static limit. Check whether — and where — your firm locks it.

Sizing for drawdown

Work backwards from the room you have:

  • $2,000 drawdown, risking $200 per trade → about 10 full losses before failing.
  • Risking $500 per trade → 4. A normal losing streak ends the account.

A common approach is to risk a small fraction of the drawdown per trade, so a normal losing streak can't end the account.

Quick recap

  1. Static = fixed. Intraday trailing = follows open profit. EOD trailing = follows closing balance.
  2. Intraday trailing eats room on trades that come back.
  3. Size from the drawdown, not the profit target.

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