Trailing Drawdown Explained: The #1 Rule That Fails Prop Traders

Trailing drawdown is a risk rule used by prop firms that moves your maximum allowed loss UPWARD as your account equity grows — but never moves back down. Think of it as a one-way ratchet: as you make money, your floor rises. If your equity drops back to that floor, you fail.

For example, with a $100K account and $3K trailing drawdown: your initial floor is $97K. If you profit $2K (equity = $102K), your floor rises to $99K. If you then lose $3K (equity = $99K), you've hit the floor and failed — even though you never went below your starting balance.

Balance-based (FTMO, FundedNext): Drawdown is calculated from your closed-trade balance at the start of each day. Unrealized losses during the day don't count until you close the trade. This is the most forgiving type.

End-of-day trailing (Apex): Your trailing stop updates only at the end of each trading day. Intraday equity spikes don't affect it. More forgiving than intraday trailing.

Intraday trailing (Topstep): The most aggressive type. Your trailing stop follows your equity in real-time, including unrealized profits. If your position goes $2K in profit and then reverses, that $2K counts against your trailing drawdown even if you close at breakeven.

Only 5-10% of traders pass prop firm evaluations. Of those who fail, the majority fail due to drawdown violations, not because they couldn't hit the profit target. The problem isn't strategy — it's compliance.

The most common failure pattern: a trader has a great day, profits spike, trailing drawdown silently rises, and the next day a normal-sized loss triggers a violation that the trader didn't see coming.

1. Know your exact drawdown type. FTMO balance-based and Topstep intraday trailing are completely different beasts.

2. Track it in real-time. Spreadsheets update after the fact. You need to see your remaining drawdown BEFORE you enter a trade.

3. Set alerts at 70% and 90%. When you've used 70% of your allowed drawdown, you should reduce position size. At 90%, stop trading for the day.

4. Use PropJournal. It automatically calculates your remaining drawdown based on your specific firm's formula and sends Telegram alerts before you breach limits.