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What Is Live Trailing Drawdown

A live trailing drawdown is a rule used by prop firms to manage risk by setting a moving threshold that follows the highest account balance or equity reached during trading. As the account grows, the drawdown level rises with it, maintaining a fixed distance below the high point. The “live” component means the drawdown is calculated and enforced in real time, meaning it can be triggered by intraday movements, including open trades. This rule applies during both evaluation and funded phases, though it is more commonly seen during evaluations and early funded stages.

How It Moves and When It Breaches

The drawdown starts at a fixed distance below the account’s starting balance. As the trader earns profits, the drawdown level trails upward, preserving that same distance below the highest realized or unrealized account value, depending on the firm’s specific rules. However, it never moves down, even if the account declines after reaching a peak. If the account equity drops below the active drawdown level at any time, the account is breached and typically disqualified immediately.

For example, if a $50,000 account has a $2,500 trailing drawdown, the drawdown starts at $47,500. If the trader grows the account to $52,000, the drawdown moves up to $49,500. If the equity falls below that amount, even for a moment, the account is breached. Since the calculation is based on real-time equity, not just closed trades, even temporary unrealized losses can trigger the rule.

Impact on Trading Behavior

Live trailing drawdown requires precise trade management, especially in volatile markets or when holding larger positions. Traders must monitor not just their closed profit and loss, but also the real-time effect of open trades on their account equity. Because the trailing drawdown increases with each new high and never relaxes, it creates a narrowing margin for error as the trader progresses.

This rule discourages aggressive scaling or overleveraging after a strong start, as the penalty for a pullback becomes more severe. It also makes recovery more difficult once profits have pushed the drawdown level far from the starting point. Traders need to understand this structure clearly to avoid accidental breaches, especially during periods of unrealized drawdown.

Differences From Other Drawdown Types

Unlike static or end-of-day drawdowns, live trailing drawdown adjusts continuously during the trading session. End-of-day drawdown only recalculates based on the day’s closing balance, while static drawdown never moves at all after account activation. Live trailing drawdown is the strictest of the three because it responds to intraday performance and enforces violations immediately, even on open trades.

This type of drawdown is often used by firms to test a trader’s ability to manage real-time risk and avoid deep intraday drawdowns. It reflects a stricter risk environment and is commonly paired with other aggressive evaluation criteria to filter for high-discipline traders.

Summary

A live trailing drawdown is a moving risk threshold that follows the highest account value reached, adjusting in real time based on both closed and open trades. If the account equity falls below the active drawdown level, the account is immediately breached. This rule is strict and requires close attention to both realized and unrealized performance. It is most commonly used during evaluations and early funded stages to ensure that traders can manage risk under dynamic market conditions. Understanding how it functions is essential to avoiding early disqualification and maintaining long-term account viability.