One of the most misunderstood yet crucial elements in the trading evaluation process is the trailing drawdown. It’s a concept that often trips up new traders attempting to qualify for a prop firm funded account. In this blog, we’ll simplify what trailing drawdowns are, why they matter, and how to manage them effectively to get funded as a trader with Apex Trader Funding or other best futures prop firms.
What is a Trailing Drawdown?
A trailing drawdown is a dynamic stop-loss that moves based on your account’s highest unrealized or realized equity. It’s designed to limit risk and ensure traders don’t give back all their profits.
Instead of a fixed loss limit, the trailing drawdown adjusts upward as your account equity increases. If your account drops below this adjusted level, you fail the evaluation.
Why Prop Firms Use Trailing Drawdowns
Prop trading firms like Apex use trailing drawdowns to measure a trader’s ability to manage risk. This method rewards traders who lock in profits and penalizes those who let winning trades turn into losers.
It tests discipline, position sizing, and consistency—three essential skills of professional trading.
How Does Trailing Drawdown Work at Apex Trader Funding?
Let’s say your starting balance is $50,000 and your trailing drawdown limit is $2,500 below that. Here's how the drawdown behaves:
● Starting trailing drawdown: $47,500
● If your equity rises to $52,000, the drawdown also rises to $49,500
● If your equity then falls to $48,000, the drawdown stays at $49,500
● You fail because your equity dipped below the drawdown
Unlike some firms, Apex's trailing drawdown stops trailing once you hit your starting balance plus profit target, giving you more breathing room after qualification.
Types of Trailing Drawdowns: Unrealized vs. Realized
Some firms calculate drawdown based on unrealized equity (open trades), while others base it on closed profits only. Apex typically uses realized equity, which is more forgiving.
Unrealized Equity-Based Drawdown:
● Moves while a trade is still open
● Can lead to failure even if the trade eventually wins
Realized Equity-Based Drawdown:
● Moves only when a trade is closed in profit
● More forgiving and trader-friendly
How to Navigate the Trailing Drawdown Successfully
Understanding the rules is just the beginning. Here’s how to strategically trade without triggering the trailing drawdown.
1. Trade Smaller Sizes Early
When your equity is near the initial balance, take smaller risks. This keeps your trailing drawdown buffer wide and allows room for small losses without ending the evaluation.
2. Lock in Profits
As you begin to make gains, take partial profits or close winning trades early to raise your drawdown limit safely. Avoid letting trades float without a clear exit plan.
3. Use Tight Stop Losses
Place stop-loss orders on all trades. Keeping day trading helps prevent large drops in equity that could hit your trailing drawdown.
4. Don’t Rush to Hit the Profit Target
Trying to hit the target in just a few trades can backfire. Pace yourself. Apex requires a minimum number of trading days for a reason—it encourages consistency over luck.
5. Monitor Your Drawdown Daily
Use tracking tools or spreadsheets to monitor where your trailing drawdown sits after every trading day. This can help you decide whether to scale back or continue pushing forward.
Common Mistakes Traders Make with Trailing Drawdowns
● Ignoring the floating drawdown: Failing to calculate it daily can lead to surprise disqualification.
● Over-leveraging after profits: Making big trades after reaching higher equity might cause massive setbacks.
● Assuming it works like a fixed stop: Many traders don’t realize it only trails upward, not downward.
Tools and Platforms That Help
Trading platforms like Rithmic, NinjaTrader, and Tradovate offer account tracking features. These help in viewing real-time equity, making it easier to monitor trailing drawdowns accurately.
Advantages of Mastering This Rule
● ✅ Keeps you focused on capital preservation
● ✅ Encourages tighter risk management
● ✅ Builds habits suitable for long-term trading success
What to Do If You Fail Due to Trailing Drawdown
Failure isn’t the end—it’s feedback. Apex Trader Funding offers:
● Affordable monthly resets
● The ability to try again without starting from scratch
● Discounted retry fees during promotions
Review your trading logs, understand where you went wrong, and come back stronger.
Final Thoughts
Mastering the trailing drawdown is one of the most important steps to succeed in a trading evaluation process. It separates impulsive traders from disciplined ones. With firms like Apex Trader Funding, where rules are clearly laid out and support is readily available, there’s no reason not to succeed—if you take the time to learn the rules.