Maximum Drawdown Rule

How We Calculate The Maximum Trailing Drawdown

Welcome back, traders. In this video, we’re going to cover how we calculate the maximum trailing drawdown.

The maximum trailing drawdown is the maximum that your account can be drawn down based on the equity before your account would be closed, or your challenge account would unfortunately be failed. This percentage is different on the turtle and hare challenges. So please review what the percentage is for each account type based on the challenge that you’ve purchased or are looking to purchase. Remember that everything that we cover here is inside your dashboard and you can see it in real time. The maximum drawdown is set.

Now start of each day, the high watermark is recorded based on the highest closing balance of that given day. So let’s say for example, you start with a $100K account here and during the day you move that up, and you close some profits and you’re at $101,000. You close that off and you’ve got $101,000 in balance.

Now the new day starts, your new high watermark is at $101,000. Let’s say on day two, you smash it out of the park and your balance goes up to $105,000. You’re on a hare account, so 10% maximum drawdown is your limit. This is not per day, this is your total limit. So how it’s calculated is, if you have $105,000 balance at the end of day two, that is your new high watermark. Now the 10% comes from that $105,000. So if you have $105,000 minus 10%, your new high watermark is at $94,500. So from the start of day three, your high watermark is $105,000 and the most you can afford your equity to go down to is this $94,500.

Now you don’t have to worry about calculating any of this because it’s all done in our dashboard automatically for you. This rule is the same for both challenge accounts and funded accounts, so please make sure you understand the rule and good luck trading.

 

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