Intraday daily drawdown and end-of-day daily drawdown refer to two different methods of assessing the performance of a trader and their strategy over a single trading day. Often times beginner and even seasoned traders can get these two different options confused. This confusion can lead to breaking a rule inside your evaluations. Knowing your drawdown is essential to getting funded. Enjoy the highly detailed breakdown below between Intraday Daily and End-of-Day Daily Drawdowns.
1. Intraday Daily Drawdown:
- Definition: Intraday daily drawdown is the measure of the largest peak-to-trough decline in the value of a trading account within a single trading day.
- Timeframe: It considers price movements and account value changes that occur during the regular trading hours of a single day.
- Purpose: Intraday drawdown helps traders & prop firms understand the extent of losses that occurred within the day and assess the risk and volatility of their positions on a more granular level.
2. End-of-Day Daily Drawdown:
- Definition: End-of-day daily drawdown is the measure of the largest peak-to-trough decline in the value of a trading account or financial instrument at the close of the trading day compared to its highest point during that day.
- Timeframe: It considers price movements and account value changes over the entire trading day but focuses on the closing values.
- Purpose: End-of-day drawdown provides a snapshot of the maximum loss experienced throughout the trading day, giving traders & prop firms an idea of the overall risk and performance over the entire day.
Summary: the key difference lies in the timing of the assessment. Intraday daily drawdown looks at the maximum loss within the trading hours of a single day, while end-of-day daily drawdown considers the maximum loss at the close of the trading day. Both metrics are useful for risk management and evaluating the performance of traders and their strategies, but they also provide insights from different perspectives on the daily trading activity.
Example:
Let's go through examples for both intraday daily drawdown and end-of-day daily drawdown:
Intraday Daily Drawdown:
Suppose a trader starts the day with a trading account valued at $50,000. During the trading day, the account value reaches a peak of $52,000 but then experiences a decline to a trough of $48,000 before the market closes.
- Highest point (peak) during the day: $52,000
- Lowest point (trough) during the day: $48,000
Intraday Daily Drawdown = Peak - Trough
Intraday Daily Drawdown = $52,000 - $48,000 = $4,000
So, the intraday daily drawdown for this trading day is $4,000.
Example for End-of-Day Daily Drawdown:
Now, let's consider the same scenario but look at the overall drawdown for the entire trading day:
- Opening account value at the start of the day: $50,000
- Closing account value at the end of the day: $49,500 (assuming a net loss for the day)
End-of-Day Daily Drawdown = Opening Value - Closing Value
End-of-Day Daily Drawdown = $50,000 - $49,500 = $500
So, the end-of-day daily drawdown for this trading day is $500.
Summary: the intraday daily drawdown focuses on the fluctuations within the trading day, while the end-of-day daily drawdown considers the overall performance from the market open to close. Both measures provide insights into the volatility and potential losses during different time frames.