- TradeDay calculates the TMD limit on end-of-day balances, for both the evaluation and funded trading accounts.
- It continues to trail your account growth until it reaches the starting account balance.
- Although the the End-Of-Day (EOD) trading account balance is used to calculate your TMD limit each day, the TMD is enforced in real time, actively during the day. You cannot go below the TMD limit with an open position during the trading session, if you do the evaluation will be over.
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How does it work?
A trailing maximum drawdown (TMD) limit is the maximum amount of money you are allowed to lose.
Think of it as a line you will not be allowed to cross.
If you have an open position and you touch the limit, your positions will be liquidated, the trading shut off, and you will have failed the evaluation, or lost your funded trading account.
The trailing maximum drawdown (TMD) is a limit that trails your account growth. It trails up as the account earns profits. If your account balance goes down the next day because of trading losses, the trailing maximum drawdown doesn’t move as it is pegged to the highest balance you have had in your account.
At TradeDay, the TMD amount is set by the program you signed up for.
Below is an example of a trader with a TMD of $3,000.
On day 1 the account balance is $100,000, the TMD is -$3000. Therefore it is set at $97,000.
By day 2 the trader has lost $1000, the TMD is still $97,000.
On day 4 the trader has made some money and the account balance is $102,000, the TMD has now trailed to $99,000.
On day 5 the trader loses some money, and the account balance is now back to $100,000. Note how the TMD has not moved and is still at $99,000.
On day 6 the trader makes some money, the TMD reaches the starting account balance of $100,000, where it now freezes for the lifetime of the account
For example:
If you join a $100k evaluation program, the starting balance will be $100,000, the TMD will be set at $97,000. When you have an account balance of $103,000 your TMD will be at $100,000 where it freezes, and you are not allowed to go below this balance.
Unlike all other trading groups, TradeDay uses the End-Of-Day (EOD) trading account balance to calculate if your TMD limit is moved up or stays where it is. We believe this gives the trader ‘room to breathe’, and the best chance at success. The EOD calculation is applied to both the evaluations and the funded trading accounts.
Please note, on funded accounts, the TMD is calculated on the earnings you have made to date, not on the balance after withdrawals.
Funded Live accounts are also subject to our slippage rule
Why do we have this trailing maximum drawdown rule?
Unfortunately, not everyone who tries trading succeeds, and we need a way to measure if your trading strategies are working.
By putting a trailing limit on the amount you can lose, we can track your success, and measure your ability to be consistent in your trading.
A drawdown limit is a risk management tool. Its a way that a trading group will manage their risk on a trader. At some point a trading group will want to stop the trader losing money, so they will put in a drawdown limit which will be the maximum they will allow that trader to lose.
Without a trailing maximum drawdown limit in place the prop trading group is open to unlimited losses.
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