Stopping for the day and the week

Module 3 showed that the daily limit only threatens the oversized trader, provided the small trader actually stops. That "provided" is this lesson. A stop-for-the-day rule set well inside the firm's daily limit, and a stop-for-the-week rule set inside the drawdown, are what keep the tables in Module 3 honest.

The daily stop

Set it at two losses, or 2R, whichever comes first, and place it at no more than 40% of the firm's daily limit. With a $1,000 daily limit and $100 risk per trade, two losses is $200 (20% of the limit); with $200 risk it is $400 (40%).

Why two, not three or five?

• The tables in Module 3 assumed you take a fixed number of trades per day regardless of results. Real traders take more trades after losses, not fewer. Capping at two losses removes that behaviour by rule.
• A third trade after two losses is the one most likely to be outside the setup, oversized, or both.
• Two losses at one-tenth of the daily limit leaves 80% of the daily limit unused. It cannot be breached by accident, slippage, or a fast market.

The stop also applies to a win followed by two losses, and to the day where you are up $400 and then lose two. Up $400 and down two is a flat day; it is not a reason to keep going.

Set it in the platform. Most platforms allow a daily loss lock; set it at the 2R figure, not at the firm's number, so that the platform enforces your rule and the firm's rule never comes into play.

The daily profit stop

The consistency cap (Module 2, lesson 3) gives the upper bound. Even without a consistency rule, a profit stop at roughly 3R to 4R per day is worth having, for two reasons. Under an unlocked trailing drawdown, a large day sets a high that a normal following day cannot keep pace with. And a large day tends to be followed by a larger-than-normal next day of risk-taking, which the log rarely records but the daily limit does.

The weekly stop

Set a weekly loss stop at roughly 25% to 30% of the total drawdown allowance. On a $2,000 allowance that is $500 to $600, or 5R to 6R at $100 risk. On hitting it, stop for the week and review the log.

The reasoning is the recovery arithmetic. Under a locked or static $2,000 drawdown:

The last column is (target + loss so far) / remaining room: the ratio from Module 3 as it stands now. At $500 down, the challenge is a 2.33-ratio problem, harder than it was but reasonable. At $1,000 down it is a 4.0 problem, which Module 3 rated "hard". The weekly stop is there so you pause and decide at 2.33, with a clear head, rather than discovering yourself at 4.0 on a Thursday afternoon.

Key idea: The firm's limits are for the firm. Yours are tighter: two losses and out for the day, a quarter of the drawdown and out for the week. Set them in the platform so that they need no willpower.

What to do on a stopped day

Close the platform. Not minimise, close. Then do the log for the day, including the trades' R results and a one-line note on whether each was the setup. If both losses were valid setups, nothing needs to change; that is variance. If one was not, the note is the lesson.

Then do something else. The evaluation is not improved by watching the market you cannot trade, and it is often harmed, because the trade you "would have taken" becomes the trade you take tomorrow at larger size.

Try it: Set the platform-level daily loss lock at 2 x your risk per trade, and write the weekly stop in dollars on your rules sheet. Then find the setting that stops you re-enabling trading for the day without a cooling-off period; most platforms have one.

Recap

• Stop for the day at two losses (2R), which is 20% to 40% of the firm's daily limit at the sizing in Module 3.
• Add a daily profit stop at the consistency cap, or 3R to 4R if there is no cap.
• Stop for the week at 25% to 30% of the drawdown allowance; the recovery ratio is still manageable at that point and not beyond it.
• Enforce both at the platform level and close the platform when hit.