A trailing drawdown is a type of maximum drawdown that moves upward with the account’s profits. Instead of being calculated from a fixed starting balance, the drawdown reference point shifts each time the account reaches a new high, tightening the loss tolerance as gains accumulate. It is one of the two main drawdown structures used across prop firm plans, the other being static drawdown.

On a $100,000 account with a $5,000 trailing drawdown, the breach point starts at $95,000. If the trader grows the account to $108,000, the reference point moves up so the new breach threshold sits at $103,000. 

From that point on, a $5,000 drawdown from the new high would end the account, even though the trader is still up $3,000 from the original balance. Some prop firms lock the trailing drawdown once the account reaches its starting balance plus the trailing amount, converting it to a static structure at that point. Others let it trail indefinitely.

Trailing drawdown is more restrictive than static drawdown in practice, because every profitable trade tightens the amount of loss the account can absorb going forward. A trader who has a strong week and then draws back can breach the trailing limit even while still in overall profit territory.