Risk a fraction of the daily limit
Lesson 12 · about 8 min
Everything in this module points to the same sizing rule, and it is simple enough to write on a sticky note: risk one-fifth to one-tenth of the daily loss limit per trade. This lesson explains why those two fractions, how to turn them into contracts or lots, and how to know which end of the range you belong at.
Why the daily limit is the base
Per-trade risk in a personal account is usually set as a percentage of equity. In an evaluation, equity is a fiction and the drawdown allowance is the real account, but even that is not the binding constraint on a given day. The daily limit is. It is the nearest failure line, it resets each morning, and it is the one that oversizing reaches first (previous lesson).
So the base for sizing is the daily limit, and the question is how many consecutive losses you want to be able to absorb in one day before the rule fails you.
| Risk as fraction of daily limit | Consecutive losses to breach | Probability of that streak on any given day (45% win rate) | (55% win rate) |
|---|---|---|---|
| 1/2 | 2 | 30% | 20% |
| 1/3 | 3 | 17% | 9% |
| 1/5 | 5 | 5% | 1.9% |
| 1/10 | 10 | 0.25% | 0.03% |
The probabilities are for a single run of that many trades; over a 20-day challenge with several trades a day, multiply the exposure. At 1/3, a 55% trader has a 9% chance of the fatal streak every time they take three trades, and will take many such runs. At 1/5 it is under 2% per run and, combined with a stop-for-the-day rule (Module 4), effectively never happens. At 1/10 the daily limit is not a realistic threat at all, and the whole evaluation is decided by the drawdown and your edge.
Which end of the range
Use one-tenth if any of these is true:
- Your expectancy is unproven (fewer than 100 logged trades in this setup).
- The drawdown is intraday trailing and has not yet locked.
- You trade a product with large, fast moves relative to your stop (NQ, crude, gold).
- The daily limit counts unrealised losses and a touch fails the account.
Use one-fifth if all of these are true:
- Your log shows a positive expectancy over 100+ trades, net of costs.
- The drawdown is static or EOD, or has locked.
- You take 3 or fewer trades per day and have a hard stop-for-the-day rule at 2 losses.
Move from one-tenth to one-fifth only after the trailing line locks. Never move above one-fifth during an evaluation; the tables in the previous lesson show why.
Key idea: Size from the daily limit, not from the nominal account. One-tenth while the edge is unproven or the trail is live; one-fifth at most once it is locked and the log supports it.
Converting to contracts and lots
Risk per trade divided by the dollar risk per contract (or lot) at your stop, rounded down.
Futures, "$50,000" account, $1,000 daily limit, 1/10 sizing = $100 per trade:
| Product | Tick value | Stop (points) | Risk per contract | Contracts at $100 | Contracts at $200 (1/5) |
|---|---|---|---|---|---|
| MES | $1.25/tick, $5/pt | 8 | $40 | 2 | 5 |
| MNQ | $0.50/tick, $2/pt | 25 | $50 | 2 | 4 |
| ES | $12.50/tick, $50/pt | 8 | $400 | 0 | 0 |
| NQ | $5/tick, $20/pt | 25 | $500 | 0 | 0 |
| MCL | $1/tick, $100/$1 move | 0.30 | $30 | 3 | 6 |
Yes, that means no full-size ES or NQ on a "$50,000" account at these fractions, unless your stop is far tighter than the product's normal noise. The nominal size lets you trade 5 ES contracts; the daily limit says that is one bad trade from failure. The firms know the difference; make sure you do.
Forex, "$100,000" account, 5% daily limit = $5,000, 1/10 sizing = $500 per trade:
| Pair | Stop (pips) | Value per pip per standard lot | Lots at $500 | Lots at $1,000 (1/5) |
|---|---|---|---|---|
| EUR/USD | 20 | $10 | 2.5 | 5.0 |
| GBP/JPY | 30 | about $6.50 | 2.5 | 5.1 |
| XAU/USD | $3.00 | $100 per $1 move | 1.6 | 3.3 |
Round down, always. Then add commissions and expected slippage to the loss side of your R so the numbers stay honest.
The reset trap
Once a trader has failed and paid for a reset, the temptation is to size up "to make the fee back". Run the numbers in the previous lesson again: for a trader with an edge, that lowers the probability of passing. For a trader without one, it changes nothing except speed. In neither case does it help. Reset, keep the same fraction, and if you have failed twice at one-tenth, the problem is the edge, not the size.
Try it: For the product you trade, write your normal stop in points or pips and compute risk per contract or lot. Then compute contracts at one-tenth and one-fifth of the daily limit for the evaluation you are considering. Put the one-tenth number on your rules sheet as the starting size and set it as the platform-level maximum.
Recap
- The daily limit is the nearest failure line, so it is the base for per-trade risk.
- One-fifth of the daily limit allows five straight losses; one-tenth allows ten; below one-fifth the daily rule stops being a realistic threat.
- Use one-tenth while the edge is unproven or the trail is unlocked; one-fifth at most afterwards; never more during an evaluation.
- Convert to contracts or lots by dividing risk by dollar risk at the stop and rounding down; full-size ES and NQ rarely fit a "$50,000" account.
See it drawn
Original diagrams for the ideas on this page. Illustrative, not real market data.