Daily Drawdown and Total Drawdown are critical parameters that traders must respect to avoid disqualification.
Daily Drawdown (DLL): The maximum loss allowed in a single day.
Maximum Drawdown (MLL): The maximum loss allowed overall.
The drawdown limits can be static or trailing.
STATIC Daily Drawdown limit:
The static Daily drawdown limit is based on the highest value between end of the day equity or end of the day balance to set the DLL of the following day.
Example:
Account size $100.000
DLL limit: 5%
The account is traded and the end of the day equity is $102.750 while the balance is $101.850. The highest value of the two is the equity and that will set the breach level to $97.750 ($102.750-($100.000*0,05)).
STATIC Maximum Drawdown limit:
The static Maximum drawdown limit is based on the original account balance/equity and it does not change at all.
Example:
Account size $100.000
MLL limit: 8%
The MLL will be calculated as follows:
$100.000*0,08=$92.000
This number will not change during the whole challege, nor in the live account unless specifically reported in the rules of a specific type of challenge.
Trailing Daily Drawdown limit:
The trailing Daily drawdown limit is based on highest intraday equity reached, which sets the current day breach level.
Example:
Account size $100.000
DLL limit: 3%
The account is traded and during the day the balance reaches $102.350 while the equity is $102.500. The DLL limit is set basing on the max intraday equity and the breach level for the current day will be set to $99.500 ($102.500-(100.000*0,03)).
The limit will then reset after the end of the trading day according to the reset time of the dashboard and will be calculated again the following day.
Trailing Maximum Drawdown limit:
The trailing Maximum drawdown limit is based on the highest value of equity ever reached on the account. The MLL breach level will not reset if the equity reduces and the only possible way to modify the set limit is to reach a higher equity value compared to the previous high registered.
Example:
Account size $100.000
MLL limit: 6%
The account is traded and the highest balance ever registered on the account is $110.000.
the MLL will be $104.000 (110.000-(100.000*0,06))
PLEASE NOTE: breaching one of the two limits is already enough to lose the account (or to get a reset in second chance if the account type has second chance included).