Drawdown is the single most misunderstood concept in prop trading. Most people sign up for an eval without knowing what kind of drawdown they're up against — and then they get locked out of their own account wondering what happened.
There are three types you need to know. Each one plays completely differently.
01 — Static.
The simplest one. A fixed dollar amount from your starting balance. If your $50K account has a $2,500 drawdown, you can lose down to $47,500. That's it. Doesn't matter if you make $10K and give some back — you only blow if you hit $47,500.
$50K account, $2,500 static drawdown
Floor is $47,500 — full stop. You can be up $5K, down $4K next day, up $8K the day after, and you're fine as long as your account never touches $47,500.
Static is the most forgiving drawdown type. It rewards traders who can have bigger up days and still recover from drawdown without panic.
02 — EOD.
End-of-Day drawdown. Your drawdown is calculated based on your account balance at the close of each trading day, not your current peak.
Translation: your wins lock in at the end of each day. Intraday gains don't move the drawdown floor — only the daily closing balance does.
$50K account, $2,500 EOD trailing drawdown
Day 1: you close at $52K. Drawdown floor moves to $49,500.
Day 2: you go up to $55K intraday, give back to $52K. Floor still $49,500 (yesterday's close +/- the trailing amount). When day 2 closes at $52K, floor becomes... still $49,500 since close didn't exceed previous.
EOD is the middle ground. Better than trailing because intraday volatility doesn't kill you. Worse than static because the floor rises with your gains.
03 — Trailing.
The killer. Your drawdown follows your account peak in real-time. Every new high — even one that lasts 30 seconds — pulls the floor up with it.
$50K account, $2,500 trailing drawdown
You spike to $54K mid-session (peak). Your drawdown floor instantly moves to $51,500. Price reverses, you give back to $51,000 = account blown. You're still up $1K from start, but the drawdown trailed you and you crossed it.
This is how most accounts die. Trader has a great morning, doesn't lock in profits, gives some back, hits the trailing line. Done.
DOESN'T CARE HOW
MUCH YOU'RE UP.
The lockout point.
Most trailing drawdowns have a lockout point — once your account hits a certain profit level (usually equal to the initial drawdown + a buffer), the drawdown stops trailing and becomes effectively static.
This is the goal. Get to the lockout point as fast as possible. Once you're locked out, the floor stops chasing you and you can actually breathe.
How to play each.
// IF YOU HAVE STATIC
Trade normally. Don't be reckless, but you don't need to micro-manage. Static rewards patience. Hit your target, take your payout, repeat.
// IF YOU HAVE EOD
Try to lock in gains before the close. If you're up nicely, consider stopping for the day. The end-of-day balance is what matters.
// IF YOU HAVE TRAILING
Speed matters. Push to the lockout point as fast as the rules allow. Once you're past it, you're safe. Until then, be paranoid about intraday peaks — they don't help you.
Bottom line.
Before you buy an eval, find out which drawdown type the firm uses. It changes everything about how you should size, when you should stop trading for the day, and how aggressive you can be.
If a firm doesn't tell you clearly which type they use on their main page, that's a red flag.
// — HIGO
Pick the right firm.
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