The High-Water Mark (HWM) represents the highest balance ever reached in an account. It acts as a reference point for determining the Max Total Loss limits.
HWM increases when new profits are made, ensuring the Max Total Loss adjusts accordingly.
HWM remains the same if no new peak is reached.
HWM decreases only when a withdrawal is made, recalculating the Max Total Loss limit.
Now, let’s visualize this concept with a practical example.
Example: High-Water Mark in Action
We will track how the HWM changes over different account activities, including profit increases and withdrawals.
Day 1: Challenge Starts
Starting Balance: $50,000
High-Water Mark: $50,000 (Initial value)
Max Total Loss (10% of Start Balance): $5,000
Min Account Equity Before Breach: $45,000
🔹 If the equity falls below $45,000, the challenge is failed.
Day 2: Profits Increase
New Balance: $55,000
New High-Water Mark: $55,000
Max Total Loss Adjusts: $55,000 – $5,000 = $50,000
✅ Since a new peak was reached, the HWM moves up and protects profits.
Day 3: Withdrawal Made
Withdrawal Amount: $3,000
New Balance After Withdrawal: $52,000
New High-Water Mark: $52,000
New Max Total Loss: $52,000 – $5,000 = $47,000
❌ The withdrawal causes the HWM to be recalculated downward, adjusting the Max Total Loss limit.