Daily drawdown
Loss limit for a single trading day, measured from either the day's starting balance or starting equity. On a $20K account with a 4% daily DD starting from balance, if you begin the day at $20,400, the floor is $19,584 — an $816 buffer regardless of how well you did the day before.
Max (static) drawdown
Overall loss floor from the initial balance. On a $20K account with 8% static max DD, the floor is $18,400 for the life of the account. Simple, forgiving, and easy to plan around.
Trailing drawdown
Floor that follows your highest balance up. On a trailing 8% account starting at $20K, if you push to $21,600, the floor rises to $19,872. Many firms freeze the trail once you clear the initial balance + drawdown — after that it locks. Others trail forever, which is much harsher.
Which combination is easiest to plan around
- Static max DD + a reasonable daily DD (4–5%) is the most predictable setup.
- Trailing that locks at initial + DD stays fair and easy to model.
- Perpetual trailing paired with a very tight daily DD is much harder to work with.
Practical protection
Set a personal daily loss cap at half the firm's daily DD. If theirs is 5%, yours is 2.5%. You still have a full trading day's buffer if you make a mistake, and you never touch the actual rule.
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