The terms “intraday daily drawdown” and “end-of-day daily drawdown” denote two distinct approaches to evaluating a trader’s strategy performance during the trading day. Both novice and experienced traders frequently confuse these two distinct options. This misunderstanding may cause you to violate an assessment policy. Gaining a prop funding account requires knowing your drawdowns.
Intraday Daily Drawdown
- Definition: The biggest peak-to-trough drop in a trading account’s value in a single trading day is measured as the intraday daily drawdown.
- Timeframe: It takes into account changes in account value and price fluctuations that take place inside a single day’s regular trading hours.
- Objective: The goal of an intraday drawdown is to assist traders and prop firms in determining the magnitude of losses incurred during the day and in making more precise assessments of the risk and volatility of their positions.
Illustration:
Let’s say a trader has a $50,000 trading account at the beginning of the day. Prior to the market closing, the account’s worth falls to a low of $48,000 from a top of $52,000 throughout the trading day.
The peak (highest point) for the day: $52,000
The day’s lowest point, or trough: $48,000
Daily Drawdown Within a Day = Peak – Trough
$4,000 is the intraday daily drawdown of $52,000 minus $48,000.
Thus, during this trading day, the intraday daily drawdown is $4,000.
End-of-Day Daily Drawdown
- Definition: The biggest peak-to-trough drop in the value of a trading account or financial instrument at the end of the trading day relative to its peak point during that day is the end-of-day daily drawdown.
- Timeframe: It concentrates on the closing numbers but takes into account changes in account value and price movements during the trading day.
- Objective: By offering a glimpse of the biggest loss sustained throughout the trading day, the end-of-day drawdown helps traders and prop firms understand the total risk and performance for the duration of the day.
Illustration:
Let’s now examine an identical situation to the first example but focus on the total drawdown for the full trading day:
$50,000 is the opening account’s worth at the beginning of the day.
At the conclusion of the day, the closing account value is $49,500 (assuming there was a net loss for the day).
Daily Drawdown at the End of the Day = Opening Value – Closing Value ($50,000 – $49,500 = $500).
Consequently, $500 is the end-of-day daily drawdown for this trading day.
Summary
The primary distinction between the two is found in the time of the evaluation. While the end-of-day daily drawdown takes into account the highest loss at the end of the trading day, the intraday daily drawdown examines the maximum loss throughout the course of a single trading day. Significant factors in mindful trading, both measures offer insights into the day-to-day trading activity from many angles and are helpful for risk management as well as assessing the success of traders and their tactics.
Regarding the fluctuating prop market and possible losses over various time periods, both metrics offer vital information.
