High-Water Mark
The peak balance used as the reference point for a trailing drawdown — once hit, it locks in and never moves down.
Definition
The high-water mark is the highest balance (or equity, depending on the firm) an account has reached, used as the anchor for calculating a trailing drawdown. When the account hits a new high, the drawdown limit moves up to track it — and then locks at the new level. The account can never go back below the drawdown buffer measured from the high-water mark, regardless of subsequent losses. The high-water mark is what distinguishes a trailing drawdown from a static one.
Example
Why It Matters
The high-water mark is the single biggest source of trailing-drawdown blowups. Traders assume that running up profits gives them a bigger cushion, but the opposite is true — running up profits tightens the floor beneath them. A good run followed by a normal pullback can turn an apparently profitable trader into a breached one. On trailing accounts, watch the high-water mark, not the current balance.