Trailing Drawdown

A trailing drawdown is a maximum-loss rule whose limit is measured from your account’s high-water mark rather than a fixed starting value. As your balance (or, at stricter firms, your intraday equity) makes new peaks, the loss floor rises by the same amount, so part of every gain becomes protected and can no longer be lost without a breach. The two key variables are what it trails (closed balance vs. live equity) and when it stops trailing (commonly once your equity reaches the initial balance plus the full drawdown amount, after which the floor locks). Equity-based trailing is the harshest version: an open trade that spikes into profit and then retraces can breach you even if you never close a losing trade. This rule is why a profitable account can still be lost by giving back gains.

In plain English — A trailing (or "trailing max") drawdown is an overall loss limit whose floor moves up as your account makes new highs, locking in some of your gains. Unlike a static drawdown anchored to the starting balance, the trailing version follows your peak balance or equity by a fixed distance. Once it stops trailing (often when you reach the starting balance plus your profit target), it usually freezes — but until then it can be unforgiving.

A 10% trailing drawdown on a $100,000 account starts with a floor of $90,000. Grow the account to $107,000 and the floor trails to $97,000 — so giving back $10,000 from the peak still breaches you, even though you are up overall.