What Does “Static Drawdown” and "Daily Drawdawn" Mean?

Managing drawdowns is a key aspect of successful trading at Pivex. To maintain a Pivex Trader's account and progress as a trader, it’s essential to understand the difference between Static Drawdown, Daily Drawdown, and Overall Drawdown.

What Does “Static Drawdown” Mean?

Static Drawdown refers to the maximum loss limit set on your account based on your initial balance, not any peak equity you might reach during trading. This means that even if your account balance grows, the drawdown limit remains fixed according to your starting balance.

Example:

If you start with a $100,000 account, the maximum allowable drawdown is 6%, or $6,000. Even if your equity increases to $120,000, the drawdown limit remains at $94,000 (6% below your initial balance).

Purpose:

The static drawdown rule ensures that traders maintain consistent risk management without being influenced by short-term gains. It helps control potential losses and supports long-term trading stability.

What Does “Daily Drawdown” Mean?

Daily Drawdown is the maximum amount you can lose in a single trading day, calculated based on your current equity. This limit resets every day at 00:00 UTC.

Example:

Starting Account Balance: $100,000

Daily Loss Limit: 4% of $100,000 = $4,000

If your equity drops by $4,000 within a single day, your account breaches the daily drawdown limit.

At 00:00 UTC, the limit resets, and a new daily calculation begins.

Purpose:

The daily drawdown rule is designed to limit the impact of a single trading day’s volatility. This encourages controlled, consistent trading rather than risking the entire account on a single session.

Example of Drawdown Breach:

Scenario:
Account Balance: $5,000
Max Daily Loss: 4% = $200
Max Overall Loss: 6% = $300

Trader A opens a large position (10 lots) on BTC/USD:
Each pip movement for 10 lots is worth $15.
If BTC/USD moves against the trade by 20 pips, the loss is 20 x $15 = $300.

This means the trader has already reached the daily drawdown limit.
If the market continues to move negatively, the equity could fall below $4,700 breaching the overall drawdown limit.

Outcome:
The account is closed, and the Challenge is marked as failed.
The trader’s strategy was not adequately managed, highlighting the need for better lot sizing and risk control.

How to Avoid Breaching Drawdown Limits

Use Appropriate Lot Sizes:

• Adjust your position size according to your account balance.
• For a $5,000 account, avoid opening excessively large positions.

Set Stop-Loss Orders:

• Always use stop-loss to control potential losses.
• Example: Use a 0.5 lot or 1 lot instead of 10 lots on a small account to minimize risk.

Follow a Disciplined Trading Plan:

• Avoid impulsive trades and stick to your predefined strategy.
• Plan your risk per trade and ensure it aligns with your drawdown limits.

Monitor Your Positions Regularly:

• Stay aware of your trades throughout the day, especially during high volatility.
• Make timely adjustments to avoid exceeding drawdown thresholds.

Why Drawdown Management Matters

Drawdown limits are essential to maintaining a professional trading approach. They:

        •        Help you develop risk management skills.

        •        Prevent significant capital loss.

        •        Encourage consistent, calculated trading decisions.

By understanding and respecting these limits, you improve your chances of passing the Trading Challenge and progressing to the Pivex Traders Stage.

If you need more guidance on managing drawdowns or want to discuss your trading strategy, feel free to reach out to our support team. We’re here to help you develop a successful trading plan.