The biggest hurdle in a prop firm evaluation isn’t hitting the profit target; it’s managing the trailing drawdown. Many skilled traders who are profitable in their personal accounts struggle—and often fail—because they fundamentally misunderstand how this critical rule works.
The Crucial Distinction: Equity vs. Balance
In most prop firm challenges (especially Futures), the trailing drawdown doesn’t track your starting balance; it tracks the highest point your account *equity* reaches during the trading day, including unrealized profits.
Example: You start with $10,000 and a $2,000 maximum trailing drawdown. You enter a trade, and your equity hits $10,500. Your drawdown limit immediately moves up from $8,000 to $8,500. If your trade reverses and you close at $10,200, your new drawdown ceiling remains at $8,500, even though your balance is now higher than your starting point.
Top10Prop’s Strategy for Success
- Use Fixed Risk: Always calculate your position size based on the static *daily* loss limit, not the trailing drawdown.
- Take Profits: The trailing drawdown is designed to incentivize locking in profits. Don’t let winning trades reverse back to zero or negative; move stops to breakeven quickly and scale out of positions to lock in the equity high.
- Know Your Firm: Be certain if your firm uses End-of-Day (EOD) trailing drawdown (much more forgiving) or Real-Time trailing drawdown (much stricter). Knowledge is your greatest defense.