Trailing Max Drawdown (TMD) Explained

Definition

A drawdown limit that trails upward with your highest account balance (or highest intraday equity, depending on the firm) but never moves back down. If your account peaks at $53,000 on a 50k account with $2,500 TDD, your liquidation level locks at $50,500. The drawdown floor rises with profits but never falls with losses. This is the most common drawdown type in futures prop firms.

Explanation

In practice, TMD means your drawdown limit can only move up, never down, creating a ratchet effect that locks in your risk level as you profit. Once your account balance increases, your new liquidation point is permanently set at that higher level. This protects the firm from giving back too much profit while ensuring you can't lose more than the original drawdown amount from any peak.

Example

You start with a $50k account and $2,500 TMD (liquidation at $47,500). Your account grows to $52,000, so your liquidation level moves up to $49,500 and stays there permanently, even if your account drops back to $51,000.

Why It Matters

TMD determines your exact liquidation point and directly impacts how much risk you can take as your account grows.

Common Misconceptions

• The drawdown resets to the original amount when you make profits

  Reality: The drawdown limit trails upward with your high-water mark and never resets lower

• You can trade more aggressively once profitable since you're using 'house money'

  Reality: Your risk capacity actually decreases as TMD locks in higher liquidation levels