Daily loss limit
Definition
A daily loss limit is a preset amount after losing which trading stops for the day regardless of the market or your mood. The standard is 5–6% of the deposit: one normal day recovers such a drawdown, and a run of five such days still leaves three quarters of the account. The limit is written down before the session and not revised during it.
Why a limit is needed if a trade is already capped
Risk per trade protects against one loss; a daily limit protects against the state you are in after a run of losses. After the third loss in a row the urge to win it back kicks in: amounts grow, entries come without a setup, and that is exactly the mode in which deposits are lost entirely. The limit breaks the spiral mechanically: the decision "no more trading today" was made in advance, and there is no one to argue with in the moment.
How much it is in money
| Deposit | 5% limit | 6% limit | Losses of 1.5% each |
|---|---|---|---|
| $100 | $5 | $6 | 3–4 |
| $500 | $25 | $30 | 3–4 |
| $1,000 | $50 | $60 | 3–4 |
| $5,000 | $250 | $300 | 3–4 |
Why 5–6%: a 6% drawdown is recovered by a 6.4% gain, that is one good day. Five days in a row at the limit is minus 26% of the account, unpleasant but recoverable. A 20% daily limit after three bad days leaves half the deposit, and half already requires +100%.
The limit and progressions
With a fixed amount the limit is simple: a few trades of 1–2% each. With martingale the rule is different: the limit must be consistent with the series amount. A six-step series at a 2.2 multiplier equals roughly 94 first trades, and if the limit is smaller it fires at the fifth step, when the losses are already taken but the recovery is forbidden. In the video about the Regime Switch bot a session was lost exactly this way: a $3,500 stop-loss stopped the series at the fifth step, and the sixth candle would have closed as a win. The ways out: a limit above the series, in which case there is one series per day, or a smaller first trade so the series fits into 5–6%.
How to set the limit up
- Write the amount down before the session, in money, not as a rough percentage.
- Enter it into the terminal's tools so that stopping does not depend on willpower.
- Count the limit by the sum of losses, not by the number of trades: three losses of 1% and one of 5% are different days.
- After it fires, review rather than take "one more trade to get it back".
In the terminal
In the BinoView Supercharts trade manager the session stop-loss is set as a percentage of the deposit and shown in money right away, next to the target and the session timer that closes trading by time. In Auto mode the stop-loss is set in the account currency in the launch limits: once the threshold is reached, the bot stops and opens no new trades. For progressions the step table in the same window shows the amount of the whole series, and that is what the limit is checked against.
How it differs from a weekly limit and a streak stop
A weekly limit is the same principle over five days, usually 10–15% of the deposit: it catches long losing stretches that the daily limit lets through in parts. A hard streak stop counts losses in a row rather than money, usually two or three, and fires before the daily limit. All three work together: the streak stop ends a session quickly, the daily limit insures against several series, the weekly one against a bad week. The full set of rules is in the risk management article.
Frequently asked questions
How much should the daily limit be?
5–6% of the deposit if a trade takes 1–2% and you trade a fixed amount: that is three or four losses in a row. With a progression the limit is calculated differently, from the amount of the whole series: either the limit is larger than the series or the series is shorter, otherwise it fires right before the last recovery trade.
How do I combine the limit with martingale?
The series amount has to fit inside the limit entirely. A six-step series at a 2.2 multiplier equals roughly 94 first trades: with a first trade of 1% of the deposit that is almost the whole account. Either the limit is set above the series and the series becomes the only one for the day, or the first trade is reduced so the series fits into 5–6%.
What do I do once the limit is hit?
Close the terminal until the next day and review the trades: check every entry against the strategy rules. If the entries followed the rules, it is an ordinary losing run and nothing needs to change. If half the trades were outside the setup, the problem is not the market, and you should come back on reduced risk.