Compare Static vs. End of Day vs. Trailing Drawdowns

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Static vs. End of Day vs. Trailing Drawdowns

Static Drawdown

Definition: A static drawdown 📉 is a fixed amount or percentage loss that a trader is allowed to incur from the initial capital or a predefined equity level. It remains constant regardless of the trader's account performance. This type of drawdown is simple to understand and manage, as the limit does not change throughout the trading period.

Example: A trader with a $100,000 account and a 10% static drawdown limit can incur losses up to $10,000. If the account balance falls to $90,000, the limit is breached. ❌

End-of-Day Drawdown

Definition: An end-of-day drawdown ⏰ is a loss threshold based on the account balance at the end of each trading day. The account balance is checked at the end of each trading day to determine if the drawdown limit has been breached. This approach allows for intra-day volatility 📊 and losses, as long as the end-of-day balance remains above the threshold and the maximum drawdown is not breached. The drawdown calculation resets daily based on the closing balance. 🔄

Example: A trader with a $100,000 account has an end-of-day drawdown limit of 10%. If the end-of-day balance falls below $90,000 on any given day, the limit is breached, regardless of intra-day performance. ❌

Trailing Drawdown

Definition: A trailing drawdown 📈 is a dynamic loss threshold that moves up with the account's peak equity 📊 but does not move down if the equity decreases. The drawdown limit increases as the account's peak equity increases. It is based on the highest account equity achieved. Once the drawdown limit is increased, it does not decrease with declining equity. As long as the maximum drawdown is not breached, the trader can continue to trade. 🔒

Example: A trader with a $100,000 account and a trailing drawdown set at 10% sees their account grow to $120,000. The new drawdown limit is $108,000 (10% of $120,000), meaning the account must not fall below $108,000. If the account peaks at $130,000, the new limit becomes $117,000 (10% of $130,000). ✅