In our Evaluation model, there are two distinct phases. Here's how it works:
**Closed Profits Example #1:**
Let's consider a $25,000 account. If you start your trading day with this balance and earn $2,500 during the day, your new balance would be $27,500. The daily stop out limit would then become $26,250 (initial balance of $27,500 minus the 5% daily drawdown of $1,250) and an overall limit of $25,000.
**Closed Profits Example #2:**
For a $100,000 account, the maximum allowable daily loss is 5% ($5,000) and an overall limit of 10% ($10,000). If you start with a balance of $100,000 and earn $4,500 during the day, your new balance becomes $104,500. The updated daily stop out limit would be $99,500 (initial balance of $100,000 minus the 5% daily drawdown of $5,000) and an overall limit of $94,500 (initial balance of $100,000 minus the 10% maximum loss of $10,000)
Here's how the daily drawdown is calculated:
The daily drawdown is 5% of the initial balance of the account at all times.
Throughout the trading period, it's essential not to exceed the maximum daily drawdown of 5% equity based on the starting day's balance or equity (whichever is higher).
Here's how the maximum relative loss is calculated:
The maximum relative drawdown of 10% is calculated from the highest equity balance only.
Additionally, it's crucial to avoid surpassing the maximum relative drawdown of 10% from the initial balance of the account.
Highest equity balance - 10% ($10,000) of initial balance = maximum loss limit
**Floating Profit Example:**
If your starting equity is $103,000, but your starting balance is $100,000, the daily drawdown will be based on your starting equity because it is the higher of the two. So, the daily drawdown would be 5% x $100,000 = $5,000. Your account balance/equity cannot fall below $97,000 for the day.
Conversely, if your starting equity is $95,000, but your starting balance is $97,000, the daily drawdown will be based on your starting balance because it is the higher value. Thus, the daily drawdown would be 5% x $100,000 = $5,000. Your account balance/equity cannot drop below $92,000 for the day.