What Is the Trailing Drawdown?
The maximum trailing drawdown is a risk management mechanism designed to limit losses while allowing your account to grow. In the 1 Phase Challenge, it is set at 6% of your starting balance.
The drawdown trails your highest equity point (HWM – Highest Watermark) upward as you make profits.
Once your equity increases by 6% or more of the initial balance, the drawdown locks at your starting balance and no longer trails upward.
How It Works
Starting Point – The drawdown begins at 6% below your initial account balance.
Trailing with Equity (HWM) – As your equity (balance + open P/L) reaches new highs, the drawdown level adjusts upward.
Locking – Once your equity increases by at least 6% of the initial balance, the drawdown locks at your starting balance and will not move again.
Example Without Growth
Starting Balance: $10,000
Trailing Drawdown: $600
If the balance drops below $9,400 → challenge fails.
Example With Growth (After Locking)
Equity grows to $12,000 → Max loss is $2,000.
Once locked at $10,000 (after equity increases by 6% or more), dropping below $10,000 results in failure.
Impact on Payouts
The trailing drawdown continues to apply once you move into a funded account. Key considerations:
Profits must be earned while remaining above the drawdown threshold.
If you breach the drawdown, the account is closed, and payouts are forfeited.
Maintaining a safe buffer above the drawdown level increases your likelihood of consistent payouts.
Why It Matters
The trailing drawdown ensures that traders demonstrate risk management while scaling profits. It allows for growth while enforcing discipline, making it a key factor in long-term trading success at TX3 Funding Forex.