The limit exists because losses cluster in time. A bad start raises the probability of a worse finish, not through any market mechanism but through the state it puts you in. Cutting the day short removes the tail of that distribution.
Set it as a multiple of your normal risk - two or three times risk-per-trade is a common starting point - and derive it from your records: the point beyond which your execution scores fall off. Express it in R or percentage rather than in currency so it scales with the account.
Enforcement beats intention. Where the platform supports it, set the limit at the broker so the stop is not a matter of willpower at the moment willpower is lowest.
Related: personal-circuit-breaker, risk-per-trade, tilt-protocol, daily-drawdown