Drawdown Types Explained: Static, Trailing, EOD and Max

Before comparing rule types, a clean definition: drawdown is the percentage decline from a peak equity value to a subsequent trough, measured in the same account, on the same clock. The peak can be the starting balance, the all-time high, or a rolling high-watermark – which of these defines "peak" is exactly what distinguishes the rule types we'll compare.

Two numbers matter:

• Current drawdown: the decline from the most recent peak to now. This shifts every tick.
• Maximum drawdown (MDD): the worst current drawdown ever observed over the account's life.

In a prop-firm evaluation, the firm imposes a maximum allowable current drawdown at every tick. Cross it and the account is terminated. So "drawdown rules" means: how is the peak calculated, and against what clock.

The rules map onto a 2×2 grid: peak is static vs. trailing × clock is intraday vs. end-of-day. That gives four canonical rule types, each with its own failure pattern.

Definition: A fixed dollar or percent amount below the starting balance. On a $100,000 account with a 10% static drawdown, the floor is $90,000. Forever. If you grow the account to $120,000, the floor is still $90,000 – you now have $30,000 of buffer.

Where you find it: Most common in single-phase evaluations and "instant funding" products. FTMO's max loss rule is the canonical example of a static drawdown on the starting balance in their original two-phase structure.

Math:

Floor = starting_balance × (1 - max_drawdown%)

The floor does not move with P&L. Intraday, end-of-day, or end-of-century – same number.

Pros

• Simple. Print the floor number on a sticky and you're done.
• Profits increase your buffer dollar-for-dollar.
• No "giveback" penalty after a winning streak.

Cons

• First bad week is dangerous – you start with zero buffer above the floor.
• A two-phase product with a static drawdown plus a 5% profit target can be a tight squeeze – 5% between you and failure with no reward for progress.

Failure pattern: Oversizing in the first 5-10 trades. Because the floor never moves up, the buffer is whatever you've earned. A trader who takes the first trade at 2% risk has a 5-trade survival limit on a 10% cap – and most losing streaks don't announce themselves in advance.

Definition: The floor trails the peak equity (or peak balance – there's a subtle difference we'll cover). On a $100,000 account with a 5% trailing drawdown and a peak of $105,000, the floor is $99,750 – not $95,000. As you grow, the floor grows with you. The floor never moves down – it only ratchets up.

Where you find it: Topstep, Apex, Earn2Trade, many single-phase products. The trailing floor is often locked at the initial balance (so it won't rise above your starting number) in the "funded" phase after passing.

Two variants

1. Trailing on closed balance: only realized P&L raises the high-watermark. Unrealized profits don't count until you close.
2. Trailing on equity: any equity excursion raises the high-watermark – even a spike you never closed at. This is the dangerous variant.

Imagine a $100K account, 5% trailing on equity. You open a position, the P&L floats +$3,000 at one point, but you close at +$500. The high-watermark jumped to $103,000. Your new floor is $97,850 – you have lost $150 of buffer for never capturing the +$3K excursion.

Math:

Floor = max(high_watermark − cap_amount, floor_previous)

Pros

• Aligns the firm's risk with active progress – you cannot "sit on" capital indefinitely.
• Forces tighter risk as you grow, which is arguably correct portfolio management.

Cons

• Equity spikes from unclosed profits ratchet the floor without giving you realized profit.
• Trend-followers and breakout traders are particularly vulnerable, because their P&L curves peak-and-trough intraday.

Failure pattern: The "victory-lap blow-up." Trader hits a peak at $107K. Takes profit down to $105K. Next day, a losing streak takes the balance to $102.5K. On a 5% trailing-equity rule, the floor is at $101.65K – one more losing trade and the account is dead, even though the trader is still +$2.5K on the evaluation.

Definition: The drawdown rule is evaluated only on the closing balance at the end of each trading day (usually the broker's 17:00 New York close, or 00:00 UTC depending on the firm). Intraday dips below the floor do not terminate the account as long as you recover by day-end.

Where you find it: Some firms use EOD trailing drawdown as a relaxed alternative to live trailing drawdown. The MyFundedFutures original rule and several Topstep variants are EOD-based.

Math: Same formulas as static or trailing, but the high-watermark is updated only at the day's end-of-session close. Intraday equity fluctuations are ignored for floor-ratchet purposes.

Pros

• Allows more intraday risk without fatal termination – scalpers and day-traders can take larger setups.
• Removes the "equity spike ratchets the floor" trap of live trailing drawdown.
• Matches how most macro funds report – they measure drawdown on NAV, not on intraday marks.

Cons

• Does not protect against catastrophic gaps over the session close.
• Some firms still enforce an intraday live floor as a separate safety rule (e.g. 15% intraday live + 10% EOD trailing). Read the rulebook.
• Less disciplining for sloppy intraday execution.

Failure pattern: "I was going to close green." Trader loses 4% by 15:00, trades back to -0.5% by 16:30, then a final 2-minute move before close takes the account to -2.5% EOD. The intraday gains they briefly saw are worthless because EOD is what the rule measures.

Definition (as a metric): The lifetime worst peak-to-trough decline observed in an account's equity curve. MDD is reported as a percentage of the preceding peak: an account that grew to $120K and fell to $102K had an MDD of 15%.

In the academic literature, Magdon-Ismail & Atiya (Risk Magazine, 2004) showed that for a continuous random walk with positive drift, the expected MDD grows with √T – i.e., as the time horizon lengthens, MDD gets worse. This means short evaluations are, paradoxically, sometimes harder to pass than longer ones: you don't have time to use the full distribution of your edge.

Where you find it as a rule: Most prop firms enforce some variant of a "max loss" that maps onto MDD:

• "Max drawdown" in two-phase FTMO-style evaluations is effectively a static-floor MDD.
• "Trailing max drawdown" is the trailing variant.
• "Daily loss" is MDD with a 24-hour reset.

Math:

MDD = max_t ( 1 − equity_t / max_s≤t equity_s )

Where t indexes time and s ranges over all prior times.

Using MDD analytically: track your strategy's historical MDD on a backtest, and size the evaluation account so that a repeat of your historical worst drawdown does not hit the firm's cap. If your strategy's backtested MDD is 12%, do not enter an evaluation with a 10% drawdown cap – the math is already against you before you place the first trade.

Ratios built on MDD:

• Calmar ratio: annualized return ÷ MDD. Published by Young (Futures magazine, 1991).
• Sterling ratio: annualized return ÷ (average drawdown). Kestner (1996).
• Ulcer Index: root-mean-square of drawdown depths. Martin & McCann (1989).

The rule type dictates the sizing heuristic. A one-size-fits-all approach is how accounts die.

Static drawdown – size to the distance

Your buffer is (current_equity − floor). Risk per trade should be no more than 10-20% of the current buffer. Early in the evaluation, the buffer is small, so size small. As you grow, the buffer grows, and you can grow size proportionally.

Trailing drawdown – size to the minimum cushion

Your buffer is the cap amount (e.g. 5%). It never gets bigger, because the floor ratchets up as you grow. Risk per trade should be 10-20% of the cap, not of the current equity. On a 5% trailing cap, that's 0.5-1% per trade, every trade, forever.

EOD drawdown – size for the day, not the trade

Calculate your daily R-multiple budget: if you're willing to risk 2% on a typical day, you can take 4 × 0.5R trades in sequence, or 2 × 1R trades, or a single 2R swing. Do not size each trade in isolation – size the session.

Daily loss – set a personal stop 60-70% of the firm's cap

If the firm cap is 5%, stop trading at 3%. This preserves the optionality to come back the next day. Traders who stop at 4.8% are essentially gambling on not being the unlucky one-in-ten who takes a 0.2% move against them before clicking "close."

Combined rules – sum the constraints, not the maxima

If a firm enforces a 5% daily loss and a 10% trailing drawdown, your sizing is governed by whichever binds first. Usually the daily loss binds early in the evaluation, the trailing binds later. Always size to the tighter constraint.

Before you place a single trade, write down the answers to these questions. If the firm's rulebook doesn't answer any of them, ask support in writing and keep the reply.

1. Is the drawdown static or trailing?
2. If trailing – balance or equity? Equity-based trailing is harsher; floating profits inflate the high-watermark.
3. Is it evaluated live or EOD? Live measurement can blow you up intraday even if you would have recovered by close.
4. What is the session-close time? 17:00 New York, 22:00 UTC, midnight UTC? The timezone determines your daily reset window.
5. Does weekend holding change the rule? Some firms freeze the floor over weekends; some don't; some prohibit weekend holds entirely.
6. What counts as a "breach"? Floating below the floor? A stop-out triggered by the system? A closing trade through the floor?
7. Is there a buffer period or grace zone? Some firms allow a small tolerance below the cap before auto-termination.
8. Is the drawdown cap reset when you pass a phase? Phase 2 often has a tighter drawdown than phase 1 – or a looser one.
9. Does the funded-account drawdown rule differ from the evaluation rule? Often yes.

A disciplined trader reads the rulebook three times: once before purchase, once after purchase but before first trade, and once after the first full trading week.

Trailing drawdowns create a particular behavioral trap worth naming. After a winning streak, the floor has moved up close to your current equity. A normal losing pullback – which would be nothing on a static floor – now feels existential. Traders respond in one of three patterns:

• Freeze: stop trading until the pullback passes. Safe but wastes calendar days.
• Micro-size: cut size by 75% and take only A+ setups. Usually the correct response.
• Revenge-size: increase risk to "get back to the peak fast." Blows up accounts.

Before entering an evaluation with a trailing rule, pre-commit to a protocol: "after any 3R drawdown from the peak, cut size by 50% for 5 trades." Writing the protocol down before the stress happens is the single highest-leverage risk-management action a trader can take – because rules written under stress are unreliable.