Max Drawdown
Definition
Max drawdown is the maximum total loss allowed from your account's starting balance (or high-water mark) before the account is terminated. It represents the absolute floor your equity cannot breach.
Max drawdown is the single most important rule in prop trading. If your equity drops below the drawdown floor, your account is typically closed immediately with no second chances. For fixed drawdown firms like FTMO, this is calculated from the initial balance — a $100,000 account with 10% max drawdown has a floor at $90,000 regardless of how much profit you make.
For trailing drawdown firms, the floor moves up as your equity increases, which means max drawdown effectively shrinks over time relative to your current equity. This distinction is crucial for risk management.
Professional prop traders often calculate their max drawdown remaining before every trading session and adjust their position sizes accordingly. Many successful traders never risk more than 20% of their remaining drawdown on any single trade. PropJournal automates this calculation and displays it on your dashboard in real-time.
Track max drawdown automatically
PropJournal monitors your prop firm metrics in real-time and alerts you before violations. Free to start, no credit card required.
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