"Maximum drawdown: 10%." It sounds simple. But that one line hides three completely different rules, and choosing — or misunderstanding — the wrong one is how traders breach accounts they thought were safe. Let's clear it up for good.
Trailing drawdown means your loss limit isn't fixed at the starting balance. It follows your account upward as you make profit. The question that changes everything is: what does it follow, and when?
Type 1: Real-time equity trailing
The drawdown line tracks your highest equity, including floating (unrealized) profit, and it updates tick by tick. If your account starts at $100,000 with a 10% trailing limit, your floor is $90,000. The moment a trade floats you up to $103,000 in equity, your floor jumps to $93,000 — instantly.
Here's the trap: if that trade then comes back down and you close it flat, your equity is back to $100,000, but your floor is now $93,000. You "didn't lose money," yet you've used up 30% of your buffer on a round-trip. This is the strictest and most punishing version, and it's why disciplined exit management matters so much under it.
Type 2: Closed-balance trailing
The line tracks your highest closed balance — only realized profit counts. Floating gains don't move the floor. Using the same example, your trade has to actually close at $103,000 for your floor to rise to $93,000. A winner that floats to $103,000 and closes flat leaves your floor untouched at $90,000.
This is far more forgiving. You're free to let trades breathe without your safety line chasing every wick of unrealized profit.
Type 3: End-of-day trailing
The line updates once per day, typically at the daily market close, based on either your end-of-day balance or equity. Intraday spikes don't move it; only where you finish the day does. This sits between the other two in strictness — intraday you have room to maneuver, but a strong close ratchets your floor up for tomorrow.
Two accounts with the same "10% drawdown" can have floors thousands of dollars apart. The type is the rule that actually matters.
Why this wrecks accounts
Most blown trailing accounts come from one assumption: "I'm up, so I have more room." Under real-time equity trailing, being up shrinks your room every time floating profit sets a new high. Traders watch their balance, feel safe, and never realize the equity-based floor has crept up right beneath an open position. One normal pullback later, the account is breached.
How to protect yourself
First, find out exactly which type your firm uses — it's often buried in the fine print, not the headline. Second, mirror it in your protection. PipsGuard's Trailing Drawdown rule lets you set the method to match your firm precisely: real-time equity, closed balance, or end of day. Once it's configured, PipsGuard tracks the same floor your firm tracks and steps in before you reach it — closing positions or blocking new risk while you still have an account to protect.
Know exactly where your floor is — at all times.
Match PipsGuard's trailing drawdown to your firm and never get surprised again.
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