What it Means:
The Trailing Max Drawdown is best thought of as a minimum account balance. For instance, the Trailing Max Drawdown for our $50K account is $2,000. This means that when you start the account your balance cannot drop below $48K. This number is calculated at the end of the trading day. Which means that at any point during the trading day, you can drop below the minimum account balance, but you must be above it when the day ends.
The Trailing Max Drawdown is calculated from your account balance high. So, if you make $500 on the first trading day your account balance will be $50,500 which will make your Trailing Max Drawdown $48,500 ($2,000 from the account balance high). If you were to lose $500 the next day your account balance goes back to $50,000, but your minimum account balance will remain $48,500. This number will not go below $48,500 for the remainder of that evaluation period. Also, once the Trailing Max Drawdown reaches the initial starting balance of your account, it won’t change for the remainder of your evaluation period. This means that if you were to make $2,500 the next day and your account balance is $52,500, your Trailing Max Drawdown will move up to $50,000 and stay there until the account is passed into FTP, reset or canceled.
The starting balance of your account will either be $0, $30K, $50K, $100K or $150K.
Why it is Important:
- Allows you to recognize and reevaluate when your strategy is not working in current market conditions
- Encourages smart account management