When a Challenge or Scaling Plan mentions that its Max Drawdown is trailing on its EOD Balance, this means that the Max Drawdown will adjust upward based on your End-of-Day Balance (closed P&L), not intraday peaks. However, the trailing will stop once it reaches the starting balance.
Example:
John purchased a Challenge with a $100,000 starting balance and a Max Drawdown of 10% (trailing on EOD Balance), meaning his Max Drawdown limit is initially set at $90,000.
- Day 1:
John’s EOD balance is $102,000. His Max Drawdown limit adjusts upward to $92,000 based on this EOD balance.
- Day 2:
During the day, John’s account balance (closed P&L) briefly reaches $105,000, but he ends the day with a balance of $104,000. His Max Drawdown limit adjusts upward to $94,000 based on the new EOD balance.
- Day 3:
John makes some trades, and his EOD balance falls to $100,000. His Max Drawdown limit remains at $94,000, as it does not decrease when the EOD balance drops.
- Day 4:
John’s EOD balance increases to $106,000. His Max Drawdown limit adjusts upward to $96,000. However, if his EOD balance grows beyond $110,000, the Max Drawdown will stop trailing upward, as it cannot exceed the starting balance ($100,000 in this case).
Key Points:
1. The Max Drawdown only trails upward at the end of each trading day based on the EOD Balance.
2. Intraday peaks do not affect the Max Drawdown limit.
3. Once the Max Drawdown adjusts upward, it never moves downward, even if the EOD balance decreases.
4. The trailing Max Drawdown stops once it reaches the starting balance. This means that any additional gains above the starting balance provide more trading flexibility without increasing the Max Drawdown.
This structure rewards consistent growth while maintaining a fixed level of risk protection.