We use two types of drawdowns: static drawdown and trailing drawdown.
Static drawdown can be found in the Ascended (2-Step) and Astral (3-Step) challenge program.
Static drawdown is a fixed loss limit that does not change, regardless of account performance. It is calculated as a percentage of the initial account balance. Once the static drawdown limit is reached, the account is closed.
If you start with a $100,000 account and have an 8% maximum drawdown limit, your maximum allowable loss limit is $8,000. This means that if your account balance or equity drops below $92,000, it would be considered a violation of this rule. To prevent any breaches, it is crucial to maintain your account balance or equity above $92,000
Trailing drawdown is a feature found in both the Thunderbolt (1-Step) and Vanguard (Instant Funding) challenge programs. This type of drawdown adjusts based on the highest account equity reached, which is referred to as the High-Water Mark. The High-Water Mark represents the peak equity your account has achieved at any point and serves as the reference for calculating your drawdown limit.
For example, if you begin with a $100,000 demo account, you'll have a 4% daily drawdown limit and a 6% trailing drawdown. Initially, your daily drawdown limit is set at $96,000, and your trailing drawdown starts at $94,000. If your equity increases to $103,000 due to a $3,000 unrealized profit (with your balance remaining at $100,000), your daily drawdown will stay at $96,000. However, your overall trailing drawdown will now adjust to $96,820 (calculated as $103,000 - 6%). Remember, daily drawdown limits reset at midnight UTC, but the maximum drawdown trails in real-time. Therefore, if your equity later in the day drops below to $96,820, your account would be breached.
Please note that the trailing drawdown only tracks your profits until it reaches the initial balance. For instance, if you gain $6,000 in simulated profit, increasing your balance to $106,000, the trailing drawdown will then lock in at $100,000. This occurs once you've achieved a 6% profit above your starting balance. After this point, the trailing drawdown will no longer follow your profits.
How Withdrawals Affect the Trailing Drawdown
It is crucial to understand that withdrawing profits does not reset your trailing drawdown limit or the High-Water Mark. The drawdown level remains fixed at the highest point it has reached.
Scenario 1: Withdrawing Before the Drawdown Locks
If your drawdown has not yet locked at your initial balance, the breach level will remain tied to your highest achieved equity, even after a withdrawal.
Example: On a $100,000 account, you make $4,000 in profit, bringing your equity's High-Water Mark to $104,000.
Your trailing drawdown limit is now set at $97,760 ($104,000 - 6%).
You decide to withdraw the full $4,000 profit, returning your balance to $100,000.
Result: Your drawdown limit does not change and remains at $97,760. This leaves you with only $2,240 ($100,000 - $97,760) of available drawdown, not the original $6,000.
Scenario 2: Withdrawing After the Drawdown Locks
Once your profit target (e.g., 6%) is reached, the trailing drawdown locks at your initial account balance.
Example: On a $100,000 account, you make $8,000 in profit, bringing your balance to $108,000.
Since your profit (8%) is greater than the 6% requirement, your trailing drawdown locks permanently at your initial balance of $100,000.
You decide to withdraw your entire $8,000 profit.
Result: Your account balance becomes $100,000. Because your drawdown limit is also locked at $100,000, your account will be immediately breached. To avoid this, you must leave a portion of your profits in the account to act as a drawdown buffer