[Educational Course] – How does trailing drawdown affect my withdrawal?

When a payout gets processed, the Max Drawdown locks at your starting balance, regardless of profits made.

This means the buffer created by your profits is reduced by the amount withdrawn.

Withdrawing all available profit would put your account at risk of breaching the drawdown thresholds.

Example:

Initial balance $1000

Profit: $50 ( the minimum that can be withdrawn)

Total balance $1050

Payout for $50 – the full profit as per this example – processed.

As the withdrawal was placed and processed, this means the following:

The balance after the withdrawal is $1000

The MAX drawdown is now locked at the initial balance, MAX drawdown locked at $1000

From the above 2 points, we know that the Balance after the withdrawal is the same as the MAX drawdown = $1000

Therefore, if a trade is placed, the equity will go below the MAX drawdown breaching the account.

It is advised to leave some buffer in your account to avoid the above scenario from happening. This is not to say it’s bullet proof as this depends on each person’s decision; you may leave a buffer and still – based on the trading activity, market conditions etc –  still breach the account.

The final decision whether a buffer will be left or how much is to be left, is on each trader.