Trailing Drawdown
Definition
Trailing drawdown is a dynamic loss limit that moves upward with your account's equity high-water mark but never moves back down. Unlike fixed drawdown, the floor rises as you profit, reducing your available risk cushion over time.
Trailing drawdown is one of the most misunderstood concepts in prop trading. When your account equity reaches a new high, the drawdown floor rises by the same amount. For example, if you have a $50,000 account with a $2,500 trailing drawdown, your initial floor is $47,500. If your equity climbs to $52,000, the floor moves up to $49,500.
This mechanism means that even profitable traders can fail if they give back gains after hitting a new high-water mark. Many traders are caught off guard because they assume drawdown only applies to losses from the starting balance. Managing trailing drawdown requires disciplined profit-taking and awareness of where your floor sits at all times.
Firms like Topstep and Apex Trader Funding use trailing drawdown, while firms like FTMO use fixed drawdown. PropJournal tracks both types in real-time and sends alerts as you approach your floor, helping you avoid accidental violations.
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