Why Having a Daily Max Loss Will Save You From Going Bankrupt

Hello traders,

A personal story

When I was building scripts for traders back in my Quant days, I often overheard them talking about the "lockout loss" (also called "max daily loss") concept.
Once reached, the trading buttons were literally disabled and they couldn't do anything.

When I became a trader, I quickly realised when I lost 2 days in a row, something was wrong with me... could be with my sleep, my mood, my lack of focus or energy, my personal life getting in the way.
More often than not, I am the reason I'm not profitable regardless of which trading strategy I use.

Meditating helps me getting back in a calm state whenever I feel emotions too strongly.

If I keep losing for more than 1 week, then I start reconsidering my strategy and tweaking it accommodating for the lack of volatility....
Can only be the lack of volatility because when it's volatile, it's easier to make money...
Most traders lose during ranges and markets tend to range most of the time.... here you go... now you know the hidden well kept secret why trading is so difficult...

That's because most traders trade what's not moving + they don't have a max daily loss....=> a sure mix to head to Rektland

While traders and investors are generally focused on increasing profits, it is also critical to manage risk and reduce possible losses.
Setting a maximum daily loss, also known as a stop loss or a loss limit, is one approach to do this.

A maximum daily loss is the most amount a trader is prepared to lose in a single day of trading.
This may be stated in either monetary terms or as a percentage of the trader's total account balance.
Setting a maximum daily loss helps traders maintain discipline and avoid allowing their emotions to take over when things don't go as planned.

Setting a maximum daily loss has many major advantages:

1) Cash preservation

By establishing a maximum loss amount, traders may guarantee that they do not lose too much of their capital on a single deal.
This may assist them protect their total trading account balance and allow them to trade in the future.

2) Managing risk

Trading has inherent risk, and it's critical for traders to determine how much risk they're ready to accept.
Setting a maximum daily loss assists traders to manage their risk and make better educated, measured transactions.

3) Discipline

It's easy to get caught up in the thrill of a transaction and lose sight of the overall danger.
A maximum daily loss encourages traders to be disciplined and avoid making rash, emotional judgments that might result in larger losses.

It is crucial to remember that a maximum daily loss is not a guarantee against loss; rather, it is a tool to assist traders in managing risk and remaining disciplined.
Traders should also be mindful of the possibility of slippage, which occurs when market circumstances change fast and the transaction is completed at a price higher than the stop loss threshold.

This one is very hard because even when we stop pushing on the long/short/buy/sell buttons, we see what's going on and we think "if I kept trading, I would have make it all back..."
No, you wouldn't have not because the reason you kept hitting your max loss for multiple days is because something is wrong with YOU and you didn't figure out what that is yet.
=> then you certainly would have failed that "easy" pump/dump move too

Conclusion

Every 2/3 weeks, assuming I kept increasing my capital consistently, I allowed myself to increase my daily max loss by 20% ish.
The percentage here doesn't matter - what matters is increasing it slightly every X weeks to reward ourselves for being consistent.

Setting a maximum daily loss is an essential part of risk management for traders and investors in general.
Traders may make better judgments and preserve their wealth by defining their risk tolerance and creating explicit loss limits.

I wrote tons of other useful FREE articles here: www.tradingview.com/u/Daveatt/

Thanks for reading
Dave