Max daily loss and prop-firm rules

A per-trade limit and a heat limit control the losses you plan. A daily loss limit controls the losses you do not plan: the third trade taken to make back the first two, the size doubled after a stop-out, the "one more" at 3:55pm. Prop firms enforce daily limits because they know these losses are where accounts die.

Your own daily limit

Set the daily loss limit in R, then convert to dollars each morning.

A common rule is 2R to 3R per day for a trader risking 1% per trade, which is 2% to 3% of the account. Once realised losses for the day reach the limit, you close the platform. Not "trade smaller", not "just watch". Closed.

The arithmetic behind it: a 3% daily loss needs a 3.1% gain to recover. Two such days in a week is 5.9% down, needing 6.3%. Five in a row (it happens) is 14.1%, needing 16.5%. All of those are recoverable in weeks. Without the limit, the same bad week can easily be 25% or more, because the fourth and fifth losses of a tilted day are rarely 1R each.

Combine it with the heat limit from the previous lesson: if heat is capped at 4% and the daily limit is 3%, then on a day when every position stops out you have already breached the daily limit and the answer is the same: stop.

Key idea: The daily loss limit is a circuit breaker for the version of you that shows up after two losses. Set it when calm, obey it when not.

Weekly and monthly limits

Extend the same idea outward:

Period	Common limit	Action on breach
Day	2R to 3R	Stop for the day
Week	5R to 6R	Stop for the week; review the log
Month	8R to 10R	Stop; cut risk per trade in half on restart (Module 6)

These numbers are for a 1% trader. If you risk 0.5%, halve them in percentage terms or keep them in R, which is why R is the better unit for the plan.

Prop-firm rules

Proprietary trading firms sell evaluations: pay a fee, trade a simulated account under their rules, and if you hit a profit target without breaking a rule you get a funded account with a profit split. The rules vary by firm and change often, so read the specific contract. The common shapes are:

Rule	Typical value on a "$100,000" account	Notes
Daily loss limit	4% to 5% ($4,000 to $5,000)	Often measured from the balance or equity at the start of the day
Maximum drawdown	8% to 10% ($8,000 to $10,000)	Static (from starting balance) or trailing (from the highest equity reached)
Profit target	8% to 10%	To pass the evaluation
Consistency or scaling rules	Varies	e.g. no single day may be more than X% of total profit

Two details in that table cost more accounts than anything else.

Trailing drawdown. With a $10,000 trailing drawdown, the floor rises as your equity rises, and at many firms it tracks the highest unrealised equity, not just closed profit. Example:

Start $100,000. Floor = $90,000.
A trade runs to +$4,000 unrealised. Peak equity $104,000. Floor rises to $94,000.
The trade reverses and you close it at +$1,500. Balance $101,500. Floor stays at $94,000.
You now have $7,500 of room, not $10,000. The open profit you gave back permanently shrank your cushion.

Some firms stop trailing once the floor reaches the starting balance; check yours.

Daily limit measured from start-of-day equity. If you begin the day at $102,000 with a 5% ($5,000) daily limit measured from the day's opening balance, the limit sits at $97,000. But if it is measured from the starting balance of $100,000, it sits at $95,000. Same rule name, different line.

Sizing for a prop account

The nominal account size is marketing. The real account is the drawdown you are allowed to lose. On a "$100,000" evaluation with a $5,000 daily limit and a $10,000 maximum drawdown:

Your real capital is $10,000, because that is what ends the account.
A per-trade risk that would be "1%" of $100,000 is $1,000, which is 10% of your real capital and one-fifth of the daily limit. Five losses in a day and the evaluation is over.
A saner approach: risk no more than one-fifth to one-tenth of the daily limit per trade, so $500 to $1,000, and treat $500 (0.5% of nominal, 5% of real) as the working number. It takes ten straight losses to hit the daily limit and twenty to hit the maximum drawdown.

Nominal account	Daily limit	Max drawdown	Sensible risk per trade
$50,000	4% = $2,000	8% = $4,000	$200 to $400
$100,000	5% = $5,000	10% = $10,000	$500 to $1,000
$150,000	5% = $7,500	10% = $15,000	$750 to $1,500

Then compute contracts from the stop exactly as in Module 2. On MES with a 10-point stop ($50 per contract) and $500 risk, that is 10 MES or 1 ES. On NQ with a 30-point stop ($600 per contract) and $500 risk, it is zero NQ and 8 MNQ.

The 2R-and-out rule for evaluations

A practical rule many funded traders use: if you lose 2R before noon, the day is over. It keeps the daily limit from ever being tested, and it keeps the trailing drawdown from being fed by revenge trades. Passing an evaluation is mostly a matter of not failing it; the profit target arrives on its own if the losses are contained.

Try it: Take any prop-firm evaluation you have looked at. Write down the daily limit, the maximum drawdown and whether it trails on unrealised equity. Compute risk per trade at one-tenth of the daily limit, then compute how many micro contracts that is for a typical stop in the market you trade.

Recap

Set a daily loss limit of 2R to 3R and close the platform when it is hit; extend to weekly and monthly limits.
Prop-firm rules typically include a daily limit, a maximum drawdown (often trailing on unrealised equity) and a profit target; read the specific contract.
Trailing drawdown means open profit you give back permanently shrinks your cushion.
The real capital in a prop account is the allowed drawdown; size per trade at one-fifth to one-tenth of the daily limit.
Passing an evaluation is mostly not failing it; a "2R before noon and out" rule protects the limits.