Daily Drawdown and Total Drawdown are critical parameters that traders must respect to avoid disqualification.
Daily Drawdown: The maximum loss allowed in a single day.
Total Drawdown: The maximum loss allowed overall, calculated from the initial balance.
Example 1: Initial Drawdown Limits
A trader starts with a $100,000 balance in a 2-Step Challenge with 5% daily drawdown and 8% total drawdown. The daily drawdown limit is $5,000, and the total drawdown limit is $8,000.
Example 2: Profit During the Day
If the trader makes a $3,000 profit during the day, the daily drawdown remains at $95,000, providing a buffer. The daily drawdown stays at $95,000 with an increased limit of $8,000 instead of $5,000.
Example 3: Profit After Daily Reset
If the trader ends the day with a running profit of $3,000, the new day’s drawdown limit will be recalculated from the highest equity point. So, with $103,000 as the starting point, the new daily drawdown will be $98,000, while the total drawdown remains at $92,000.