Drawdown without the myths: static, trailing and intraday in practice
Maximum drawdown is the most important number for your account’s survival. We explain the difference between static, trailing and intraday drawdown and how to measure it on your own trades.
What is drawdown
Drawdown is the decline of an account from its last equity peak. If an account grows from 10,000 to 12,000 USD and then falls to 10,800 USD, the current drawdown is 1,200 USD, or 10%. Maximum drawdown is the largest such decline over the entire period tracked.
Static drawdown: a fixed boundary
With static drawdown, the limit is set from the starting balance and doesn’t move. With a 100,000 USD account and a 10% limit, equity must not fall below 90,000 USD, no matter how much you have made before. It is the most predictable type of limit.
Trailing and intraday drawdown: a boundary that moves with you
Trailing drawdown moves up with each new account high. The end-of-day variant recalculates it at the daily close, the intraday variant in real time, including unrealized profits. If a trade first goes into profit and then comes back, an intraday limit can move the boundary higher even though you haven’t closed anything.
Recovery time matters just as much
Besides the depth of a decline, track how long it takes for the account to reach a new high again. A deep drawdown that recovers quickly is a different problem from a shallow decline the account takes months to climb out of. Both say a lot about how a strategy copes with tougher market phases.
How to monitor drawdown systematically
Set one threshold at which you reduce your position size and a second at which you stop trading and review your data. In unalyze, you see the equity and balance history of every account in one place, so drawdowns and their recovery are always in view.
