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Trailing drawdown explained
The maximum drawdown sets the lowest your account equity may ever reach. In a trailing drawdown that minimum (the floor) follows your best result upward, which is why a winning day can make the next losing trade more dangerous.
The floor and the high-water mark
The floor is the high-water mark minus the drawdown allowance. On a $50K account with $2,000 of trailing drawdown, the high-water mark starts at $50,000 and the floor at $48,000. If equity touches the floor, the evaluation fails and any open position is closed at that price.
Intraday trailing
The high-water mark follows your equity, including unrealised profit, every tick. Example: you buy, the trade shows +$1,500, then comes back and you exit at +$200. The high-water mark reached $51,500, so the floor is now $49,500, only $700 below your $50,200 balance. Letting winners round-trip is what hurts most under this rule.
End-of-day trailing
The high-water mark only updates at the daily settlement (5:00 PM ET for CME futures) and uses your closed balance. Same trade as above: at settlement the balance is $50,200, so the floor moves to $48,200. Open-profit swings during the day don't move it, but the daily loss limit still applies.
When it stops trailing
Most futures evaluations stop trailing once the floor reaches the starting balance. On the $50K example that happens when the high-water mark hits $52,000: the floor locks at $50,000 and never moves again.
Static drawdown
Many forex and crypto programs use a fixed floor instead: starting balance minus the max loss. A $100K Two-Step account with 10% max loss fails if equity ever goes below $90,000, no matter how much profit came first.
Practise it
BackForFree shows the floor, the high-water mark and the liquidation price of your open position on every bar, for intraday, end-of-day and static drawdown. See the trailing drawdown simulator.