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The Market > Trading Floor > Daily loss limits?

Daily loss limits?

Posted: 2018-Nov-05 15:39 by Clevergish

Does anyone have any great ideas regarding daily loss limits?

It seems to me that a conflict exists between trading the numbers i.e just trading the system as and when your signals present themselves & between you actively limiting the damage on a down day even if you get more signals.

If you have a method that works X amount of times out of 100, then surely continuing to trade is the right thing to do over and above a daily loss limit as we never know when that next productive outcome will take place.

Or is it better to have a limit and try and manage that downside on days when things just don't work out allowing you to minimize the hole from which you'll have to dig

Any feedback, thoughts comments would be warmly welcomed.

Thanks.

Posted: 2018-Nov-06 14:28 by Codex

In general it's a good idea to have some sort of daily, weekly, and monthly drawdown limits to protect your account.

It's not really about your system so much as it is protection from yourself. We all have bad days. Maybe we miss our entry or exit too early and find ourselves looking for revenge. There are myriad potential events that can cause us momentary lapses in judgment. By setting max drawdown limits over different periods, we give ourselves an opportunity to short circuit a downward spiral of mistakes, poor decisions, and losses.

Reasonable loss limits free us up to step back, clear our head, and eventually resume trading without needing to re-fund the account.

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