Drawdown types with numbers: static, end-of-day trailing and intraday trailing

What you will learn

• How the floor is calculated under static, end-of-day (EOD) trailing and intraday trailing drawdowns.
• Why an intraday trailing drawdown can be breached on a day that ends with a profit.
• How to convert the drawdown type into a real risk-per-trade budget and a number of allowed losses.
• When a trailing floor "locks" and what that means for a funded account.

Explanation

Drawdown, losing streaks and recovery mathematics were covered in the course Risk & Trade Management. Here we deal with the firm's maximum loss rule, usually expressed as a drawdown floor: an account value below which the account is closed. Three definitions are common, especially in futures-style programs.

Static drawdown

Floor = initial balance − allowed loss. For a $50,000 account with a $2,000 allowance, the floor is $48,000 forever. Profits raise your distance to the floor; this is the most trader-friendly type.

End-of-day trailing drawdown

Floor = highest end-of-day balance so far − allowed loss. Only closed balances at the daily settlement count. If the best end-of-day balance is $51,000, the floor is $49,000. Many programs stop raising the floor once it reaches the initial balance (it locks at $50,000), after which the rule behaves like a static floor at your starting balance; others keep trailing. Check which.

Intraday trailing drawdown

Floor = highest equity peak ever reached, including open (unrealised) profit, − allowed loss. The peak is recorded tick by tick. A trade that shows +$1,500 for a moment and then closes at +$300 still raises the floor by $1,500. This is the harshest definition because profit you never banked permanently tightens your limit.

From floor to risk per trade

Your real risk budget at any moment is current balance (or equity) minus the floor. A sensible plan expresses risk per trade as a fraction of that budget, not of the headline account size. With a $2,000 budget, risking "1 percent of $50,000" means $500 per trade and only four consecutive losses before the account is gone; "1 percent of the account" is really 25 percent of the budget. Most professional plans risk 5 to 10 percent of the remaining budget per trade in such programs, which is $100 to $200 here, and re-calculate daily.

Worked example

Hypothetical example: $50,000 account, $2,000 allowed loss, same two trading days under the three definitions. Commissions and exchange fees are ignored. Day 1: one trade reaches +$1,500 unrealised and is closed at +$300; end-of-day balance $50,300. Day 2: one trade reaches +$2,200 unrealised and is closed at −$400; end-of-day balance $49,900.

Remaining budget after day 2 (balance $49,900):

• Static: $49,900 − $48,000 = $1,900.
• EOD trailing: $49,900 − $48,300 = $1,600.
• Intraday trailing: $49,900 − $50,500 = −$600. The account was breached during day 2 when the trade reversed from +$2,200 to −$400, a swing of $2,600 against a $2,000 allowance measured from the peak.

Same trades, same closed results, three different outcomes. Under the intraday rule the trader had to protect open profit: a stop moved to +$200 once the trade showed +$2,200 would have kept the account, because the swing from peak to exit would be $2,000 at most. Under the static rule the trader could afford to let the trade breathe.

Risk per trade translated. Under the intraday rule after day 1 the budget was $50,300 − $49,500 = $800. Risking $500 (1 percent of the headline size) would allow one loss. Risking 10 percent of the budget, $80, allows ten losses and is the honest number. The headline "$50,000 account" is irrelevant to risk; the budget is what you actually have.

Common mistake

Practice activity

On paper: $100,000 account, $3,000 allowed loss. Day 1: trade peaks at +$1,800 unrealised, closes +$1,000. Day 2: trade peaks at +$900, closes +$500. Day 3: a loss of $2,400 is closed with no open profit beforehand. For the end-of-day trailing and the intraday trailing definitions, calculate the floor after each day and state whether the account survives day 3. Assume no locking at the initial balance.

Key takeaways

• Static floors are fixed; EOD trailing floors follow the best closed balance; intraday trailing floors follow the best equity peak, including open profit.
• The same trades can pass under one definition and fail under another.
• Define risk per trade as a fraction of the remaining budget (balance minus floor), recalculated every day.
• Under intraday rules, protecting open profit is a survival rule, not a style choice.

Next step

With the floors defined, the next lesson calculates the probability of passing and the expected cost of attempts from your own win rate and risk per trade.