How is Max Total Loss calculated?

How is Max Total Loss calculated?

The Max Total Loss limit varies depending on the type of challenge:

• 2x Evaluation Challenges:
  The Max Total Loss is static and set as a fixed percentage of the Challenge Starting Balance. Unlike dynamic limits, this static limit does not adjust as the account balance increases. It remains fixed at the initial equity level, providing a clear and unchanging threshold.
  
  
• 1X Evaluations Challenges and No Evaluation Challenges:
  The Max Total Loss is dynamic, adjusting based on the account's performance.
  
  For 1X Evaluations Challenges and No Evaluation Challenges, the Max Total Loss is initially set at a fixed percentage of the Challenge Starting Balance, converted into a monetary amount and shown on the TradingCult Dashboard as Max Total Loss. This limit is dynamic, trailing the account's highest balance (the High-Water Mark) by a fixed amount. As the account balance increases, the Max Total Loss adjusts upward. If profits are made on the account which increase the balance to match or exceed the initial Max Total Loss amount, the Max Total Loss limit locks in at the starting balance and stops adjusting. This means that, no matter how high the balance rises, the account will only breach the rule if it falls back to the original starting balance.
  
  

When a payout/withdrawal is made from the account the High-Water Mark and Max Total Loss will adjust accordingly.

• Withdrawals adjust the High-Water Mark (HWM): After a withdrawal, the High-Water Mark is reduced by the withdrawal amount.
• New Max Total Loss: Based on the updated High-Water Mark, the Max Total Loss is recalculated using the following formula: New Max Total Loss = New High-Water Mark – Initial Max Total Loss.

1. If the Max Total Loss has locked in at the starting balance and after payout the New Max Total Loss limit is higher than this amount, the Max Total Loss remains locked at the starting balance.

Example: The Max Total Loss is locked at the starting balance, and after payout, the recalculated Max Total Loss limit is higher than the locked amount.

• • Starting Balance: $100,000
  • Initial Max Total Loss: $10,000 (10% of initial starting balance $100,000)
  • High-Water Mark: $140,000
  • Withdrawal Amount: $20,000

Calculation:
After the withdrawal, the new High-Water Mark is calculated as:

• • New High-Water Mark =  Previous High-Water Mark – Withdrawal Amount
  • New High -Water Mark =  $140,000 – $20,000 = $120,000

New Max Total Loss Minimum Account Equity. The new Max Total Loss Minimum Account Equity is calculated as:

• • New Max Total Loss Minimum Account Equity = New High-Water Mark – Initial Max Total Loss
  • New Max Total Loss Minimum Account Equity = $120,000 – $10,000 = $110,000

Outcome:
Since $110,000 (New Max Total Loss Minimum Account Equity) is higher than the locked Max Total Loss ($100,000), the Max Total Loss remains locked at $100,000.

2. If the Max Total Loss has been locked in at the starting balance and after payout the New Max Total Loss limit is lower than this amount, the Max Total Loss will be reduced by the initial Max Total Loss calculated based on the starting balance of the challenge and deducted from the New High-Water Mark.

Example: The Max Total Loss is locked at the starting balance, and after payout, the recalculated Max Total Loss limit is lower than the locked amount.

• • Starting Balance: $100,000
  • Initial Max Total Loss: $10,000 (10% of initial starting balance $100,000)
  • High-Water Mark: $120,000
  • Withdrawal Amount: $20,000

Calculation:
After the withdrawal, the new High-Water Mark is calculated as: 

• • New High-Water Mark =  Previous High-Water Mark – Withdrawal Amount
  • New High-Water Mark =  $120,000 – $20,000 = $100,000

New Max Total Loss Minimum Account Equity. The new Max Total Loss Minimum Account Equity is calculated as:

• • New Max Total Loss Minimum Account Equity = New High-Water Mark – Initial Max Total Loss
  • New Max Total Loss Minimum Account Equity = $100,000 – $10,000 = $90,000

Outcome:
Since $90,000 (new limit) is lower than the locked Max Total Loss ($100,000), the Max Total Loss is reduced to $90,000, reflecting the new High-Water Mark.

3. If the Max Total Loss has not locked in at the starting balance, after payout the Max Total Loss will be reduced by the initial Max Total Loss calculated based on the starting balance of the challenge and deducted from the New High-Water Mark.

Example: The Max Total Loss has not yet locked at the starting balance, and after payout, the recalculated Max Total Loss is reduced based on the new High-Water Mark.

• • Starting Balance: $100,000
  • Initial Max Total Loss: $10,000 (10% of initial starting balance $100,000)
  • High-Water Mark: $106,000
  • Withdrawal Amount: $5,000

Calculation:
After the withdrawal, the new High-Water Mark is calculated as: 

• • New High-Water Mark =  Previous High-Water Mark – Withdrawal Amount
  • New High-Water Mark =  $106,000 – $5,000 = $101,000

New Max Total Loss Minimum Account Equity. The new Max Total Loss Minimum Account Equity is calculated as:

• • New Max Total Loss Minimum Account Equity = New High-Water Mark – Initial Max Total Loss
  • New Max Total Loss Minimum Account Equity = $101,000 – $10,000 = $91,000

Outcome:
The Max Total Loss Minimum Account Equity is reduced to $91,000.

Let's see how this works with a 10% Max Total Loss Limit with two separate scenarios: 

• Scenario 1 – The account reaches its High-Water Mark and then a withdrawal is made.
• Scenario 2 – Having reached a High-Water Mark, some profits are lost in trading, and then a withdrawal is made.

Scenario 1 – The account reaches its High-Water Mark and then a withdrawal is made.

Step 1:

• • Challenge Starting Balance = $100,000
  • High Water Mark = $100,000
  • Initial Max Total Loss = $10,000 (10% of initial Challenge Starting Balance $100,000)
  • Max Total Loss Minimum Account Equity ($100,000 – $10,000) = $90,000

Starting with $100,000, your Max Total Loss is 10%, which is $10,000. If your equity falls to $90,000, you've hit your limit and failed the Challenge.

 
Step 2:

• • Challenge Balance = $99,000
  • High Water Mark = $100,000
  • Max Total Loss = $10,000 (10% of initial Challenge Starting Balance $100,000 (High Water Mark)
  • Max Total Loss Minimum Account Equity ($100,000 – $10,000) = $90,000

If your balance is $99,000, your Max Total Loss is still $10,000, based on the original $100,000 starting balance. So, if your equity drops to $90,000, you've reached your limit and failed the Challenge.
 
Step 3:

• • Challenge Balance = $115,000
  • High Water Mark = $115,000
  • Max Total Loss = $15,000 ($115,000 High Water Mark, Trailing Max Total Loss locked in at $100,000) 
  • Max Total Loss Minimum Account Equity ($115,000 – $15,000) = $100,000

If your balance rises to $115,000, your Maximum Loss increases to $15,000, as your Max Total Loss is locked in at the starting balance. But if your equity drops to $100,000, you've reached your limit and failed the Challenge.
 

Payout/Withdrawal impact:

Full Withdrawal

• • Challenge Balance = $115,000
  • High Water Mark = $115,000
  • Challenge Starting Balance = $100,000
  • Profits = $15,000
  • Withdrawal Amount = $15,000

With a full withdrawal of $15,000 in profits, the Challenge balance and High-Water Mark adjust to $100,000 (Previous High-Water Mark – Withdrawal amount = $115,000 - $15,000). The Max Total Loss is adjusted accordingly:

• • New Max Total Loss Minimum Account Equity: $90,000 (New High-Water Mark – initial Max Total loss (10% of starting balance)  = ($100,000 – $10,000).
     

Partial Withdrawal

• • Challenge Balance = $115,000
  • High Water Mark = $115,000
  • Challenge Starting Balance = $100,000
  • Profits = $15,000
  • Withdrawal Amount = $10,000

After withdrawing $10,000, the Challenge balance and High-Water Mark adjusts to $105,000 (Previous High-Water Mark – Withdrawal amount = $115,000 - $10,000), and the Max Total Loss adjusts accordingly:

• • New Max Total Loss Minimum Account Equity: $95,000 (New High-Water Mark – initial Max Total loss (10% of starting balance) ($105,000 – $10,000).

Scenario 2 – Having reached a High-Water Mark, some profits are lost in trading, and then a withdrawal is made.

Step 1:

• • Challenge Starting Balance = $100,000
  • High Water Mark = $100,000
  • Max Total Loss = $10,000 (10% of initial Challenge Starting Balance $100,000)
  • Max Total Loss Minimum Account Equity ($100,000 – $10,000) = $90,000

Starting with $100,000, your Max Total Loss is 10%, which is $10,000. If your equity falls to $90,000, you've hit your limit and failed the Challenge.
 
Step 2:

• • Challenge Balance = $140,000
  • High Water Mark = $140,000
  • Max Total Loss = $40,000 ($140,000 High Water Mark, Trailing Max Total Loss locked in at $100,000) 
  • Max Total Loss Minimum Account Equity ($140,000 – $40,000) = $100,000

If your balance is $140,000, your Maximum Loss increases to $40,000, as your Max Total Loss is locked in at the starting balance. If your equity drops to $100,000, you've reached your limit and failed the Challenge.
 
Step 3:

• • Challenge Balance = $115,000
  • High Water Mark = $140,000
  • Max Total Loss = $15,000 ($140,000 High Water Mark, Trailing Max Total Loss locked in at $100,000) 
  • Max Total Loss Minimum Account Equity ($115,000 – $15,000) = $100,000

If your balance has fallen from $140,000 and is now $115,000, your Max Total Loss is now  $15,000, as your Max Total Loss is locked in at the starting balance. If your equity drops to $100,000, you've reached your limit and failed the Challenge.
 

Payout/Withdrawal impact

Full Withdrawal

• • Challenge Balance = $115,000
  • High Water Mark = $140,000
  • Challenge Starting Balance = $100,000
  • Profits = $15,000
  • Withdrawal Amount = $15,000

With a full withdrawal of $15,000 in profits, the Challenge balance is reset to $100,000, the New High-Water Mark is reset to $125,000 (Previous High-Water Mark – Withdrawal amount = $140,000 - $15,000) . The Max Total Loss is adjusted accordingly:

• • New Max Total Loss Minimum Account Equity: $100,000 (New High-Water Mark – initial Max Total loss (10% of starting balance) ($125,000 – $10,000 = $115,000) as this amount is higher than the initial starting balance your Max Total Loss remains locked in at the starting balance. If your equity drops to $100,000, you've reached your limit and failed the Challenge.

Key Points

After a Full withdrawal the account will look like this:

• • Challenge Balance = $100,000
  • High Water Mark = $140,000
  • Max Total Loss Minimum Equity = $100,000

As all profits were withdrawn on this account, the balance is now equal to the Max Total Loss Minimum Equity. In this scenario, there is no available equity on the account to support any drawdown. Any new trades opened will result in the accounts Equity dropping below the Max Total Loss Minimum Account Equity level which would breach the limit and fail the challenge. 

Partial Withdrawal

• • Challenge Balance = $115,000
  • High Water Mark = $140,000
  • Challenge Starting Balance = $100,000
  • Profits = $15,000
  • Withdrawal Amount = $10,000

After withdrawing $10,000, the Challenge balance adjusts to $105,000, and the Max Total Loss adjusts accordingly:

• • New Max Total Loss Minimum Account Equity: $100,000 (New High-Water Mark – initial Max Total loss (10% of starting balance)  ($130,000 – $10,000 = $120,000) as this amount is higher than the initial starting balance your Max Total Loss remains locked in at the starting balance.

Key Points

After a partial withdrawal the account will look like this:

• • Challenge Balance = $105,000
  • High Water Mark = $140,000
  • Max Total Loss Minimum Equity = $100,000

As only partial profits were withdrawn on this account, the balance is now higher than the Max Total Loss Minimum Equity. In this scenario, there is $5,000 of equity on the account to support any drawdown. But if your equity drops to $100,000, you've reached your limit and failed the Challenge.