Drawdown types explained

The drawdown limit is the most important rule at any prop firm. Break it and the account ends. There are 3 common types, and they behave very differently. Understanding them can be the difference between passing and failing.

What drawdown means

Drawdown is how far your account can fall before it hits a limit. On a 50K account with a $2,000 drawdown, the starting limit is $48,000. The question is what happens to that limit as your balance changes.

1. Static drawdown

A static drawdown never moves. If your limit starts at $48,000, it stays at $48,000 whether your balance climbs to $51,000 or drops to $49,000.

This is the simplest type to manage. Every dollar of profit adds a dollar of breathing room.

2. End-of-day trailing drawdown

An end-of-day trailing drawdown follows your highest end-of-day balance. When you close the day at a new high, the limit moves up by the same amount. It never moves down.

At BluSky, the end-of-day drawdown updates at 6pm ET, when the trading day rolls, and it only moves up. What happens during the day does not move it. Only your balance at the close counts.

3. Intraday trailing drawdown

An intraday trailing drawdown follows your highest balance during the day, open trades included. If a trade is up $800 at its peak, the limit moves up $800 right then, even if you give it all back before closing.

This type is the hardest to manage. A trade that goes well and then reverses can tighten your limit without adding a cent to your balance.

Side by side

How to trade with each

• Static: build profit early and your cushion grows with it.
• End-of-day trailing: focus on where you close each day. Intraday swings do not move the limit.
• Intraday trailing: take profits with intent, since open profit that disappears still tightens the limit.

Try the drawdown simulator

The BluSky drawdown simulator lets you play out a series of days and watch how each type of drawdown moves. It is the fastest way to make this lesson click.