Trailing Drawdown
A drawdown limit that moves up as your account balance increases, but never moves down.
Definition
A trailing drawdown is a maximum loss limit that follows your account balance higher as you make profits, but locks in at its highest point and never decreases. Unlike a static drawdown, your allowed loss threshold rises with your profits — giving you a larger absolute buffer as you grow — but you can never go back below the highest watermark.
Example
If you start with a $100K account and a 5% trailing drawdown ($5,000 limit), and your account grows to $110K, your drawdown limit moves to $5,500 (5% of $110K). Your account must not fall below $104,500. If you then lose back to $105K, the limit stays at $104,500 — it doesn't reset down.
Why It Matters
Trailing drawdowns are generally stricter than static drawdowns for traders who build early profits — the limit locks in quickly, meaning a single bad day after a good run can breach the rule. Traders who run up profits and then reverse can get caught by a trailing limit that a static limit would not have triggered.
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Related Terms
Static Drawdown
A fixed maximum loss limit calculated from your starting account balance, not your peak balance.
EOD Trailing Drawdown
A trailing drawdown that only moves up at the end of the trading day, not tick-by-tick during the session.
Max Drawdown
The overall account loss cap — the total amount an account can drop before the firm closes it.
Daily Drawdown
A per-day loss limit that caps how much an account can lose in a single trading day, separate from the overall max drawdown.
← All termsLast updated 2026-04-21