Stage 3: Execution and Risk · Module 8: Risk Management and Position Sizing · Lesson 9 of 9 · Back to course
Risk per trade controls how much one trade can cost. It doesn’t stop five trades in a row on a bad morning, or a frustrated afternoon spent trying to win it back. Loss limits do. They’re personal circuit breakers: once a set amount is lost in a day, week or month, you stop. No debate.
This last lesson in Module 8 shows how to set yours, how to stick to them, and how they line up with prop firm rules.
What you’ll learn
- Why bad days get worse if you keep trading
- How to set daily, weekly and monthly limits in R and pounds
- A “stop after consecutive losses” rule
- Practical ways to enforce your limits
- How personal limits fit inside a prop firm’s daily and overall limits
Why bad days get worse
Losing trades change how you think. After a few, many people start taking setups they’d normally skip, increasing size to get back to even, or ignoring their stop. This is tilt, and it’s one of the most common reasons a normal losing day turns into a disaster. (The revenge trading lesson covers the psychology.)
The point of a loss limit is to make the decision to stop before you’re in that state. When you hit it, you’re not deciding anything – you’re following a rule you set when you were calm.
Set your limits in R
Setting limits in R (your risk per trade – see Lesson 8.5) keeps them tied to your sizing. A common structure:
| Limit | Example in R | What happens when it’s hit |
|---|---|---|
| Daily | 2–3R | Stop trading for the rest of the day |
| Weekly | 4–6R | Stop until next week; review your trades |
| Monthly | 8–10R | Stop live trading for the month; full review, demo only |
| Consecutive losses | 3 in a row | Stop for the day, even if under the daily limit |
These are examples, not recommendations. Choose levels that suit your method and your account.
In pounds
Example (illustrative): £5,000 account, risking 1% (£50) a trade, so 1R = £50.
| Limit | R | In £ | % of account |
|---|---|---|---|
| Daily | 2R | £100 | 2% |
| Weekly | 5R | £250 | 5% |
| Monthly | 8R | £400 | 8% |
Write these numbers in your trading plan and on a note next to your screen.
Include open risk
A limit only works if you count trades that are still open. A simple rule:
Don’t open a trade if its risk, plus the risk on your open trades, could take you past today’s limit.
Example: your daily limit is £100. You’ve lost £50 today and have one trade open risking £50. You shouldn’t open another, because if both lose you’d be at −£150.
A sample week
Illustrative, using the £5,000 example above (daily £100, weekly £250):
| Day | Results | Running week | What happens |
|---|---|---|---|
| Mon | −£50, +£80 | +£30 | Normal day |
| Tue | −£50, −£50 | −£70 | Daily limit hit (−£100). Stop. |
| Wed | −£50, +£100, −£50 | −£70 | Normal day |
| Thu | −£50, −£50 | −£170 | Daily limit hit again. Stop. |
| Fri | −£50 | −£220 | One trade allowed at most, as the next loss would pass −£250. Stop for the week after this. |
Tuesday and Thursday were bad days, but neither became a disaster, and the week ended down 4.4% rather than whatever a frustrated Thursday afternoon might have cost.
How to actually stick to it
Rules on paper are easy to break when you’re annoyed. Some practical help:
- Close the platform when a limit is hit. Log out, not just minimise.
- Use platform tools where available – some brokers let you set loss alerts or limits on the account.
- Track it live on a simple sheet: today’s R, this week’s R.
- Have a “stop routine”: write two lines in your journal about what happened, then do something away from the screen.
- Treat a broken limit as a rule break and apply your consequence – for example, half size for the next ten trades.
After you hit a limit
Hitting a limit isn’t failure. It’s the system working. A short review helps you learn from it:
- Did each losing trade follow the plan?
- Was there a pattern – same setup, same time of day, same news?
- Were any losses bigger than 1R? If so, why (slippage, a moved stop, a gap)?
- Are you calm enough to trade tomorrow at normal size?
If the answer to the last question is no, trade smaller or not at all.
Matching prop firm rules
Prop firm challenges have their own daily and overall loss limits, and breaking either usually ends the challenge (see how prop challenges work). Your personal limits should sit well inside them.
Example (illustrative rules, not any real firm’s): a £10,000 challenge with a 5% (£500) daily limit and a 10% (£1,000) overall limit.
- Personal daily stop: 2% (£200) – leaving £300 of buffer for slippage, gaps and a trade still open.
- Personal weekly stop: 4% (£400) – so one bad week can’t use more than 40% of the overall limit.
- Check exactly how the firm calculates its limits – from starting balance or day-start equity, static or trailing – and work out your stops from the stricter version.
Practise with these limits on demo first. If you can’t stick to them on demo, a paid challenge won’t make it easier. The challenge plan lesson builds this into a full written plan.
Futures example: a daily limit in ticks
Hypothetical: you trade 2 MES contracts with an 8-point (32-tick) stop, so 1R = 32 × $1.25 × 2 = $80.
- A daily limit of 3R = $240. Write it in dollars and in R, and stop when you reach it.
- If a futures prop firm has a $1,000 daily loss limit, your personal 3R limit sits well inside it – so a bad day ends your session, not your account.
- Check what time the firm’s trading “day” resets in UK time, especially in the clock-change weeks (see 1F.6).
Module 8 summary
You can now answer the four risk questions before any trade:
- How much will I risk? A small fixed percentage – the 1% rule.
- What size is that? Position sizing using the right pip or point value.
- Is it worth taking? Risk-to-reward and expectancy.
- When do I stop? Drawdown responses, correlation caps and the loss limits in this lesson.
Key takeaways
- Loss limits stop a bad day or week turning into a disaster.
- Set them in R so they scale with your risk per trade. Write them down in pounds too.
- Count open trades towards your limit before you open a new one.
- Enforce limits with simple practical steps – close the platform, track live, apply consequences.
- In a prop challenge, keep personal limits well inside the firm’s.
Quick check
- 1R = £40. What’s a 3R daily limit in pounds?
- You’re down £80 today with a £100 limit. Can you take a trade risking £40?
- A firm’s daily limit is £500. Should your personal daily stop be £500?
Answers: 1) £120. 2) No – a loss would take you to −£120. 3) No – set it well inside, for example £200.
FAQs
Should I also stop after a big win? Some traders do, because a big win can lead to overconfidence and sloppy trades. A “stop after +3R” rule is optional, but worth trying if you notice you give profits back.
What if I’m only taking one trade a day? Then a weekly and monthly limit matter more than a daily one.
Can I reset my limit by depositing more money? No. That defeats the purpose. Limits are about protecting you from your own decisions on bad days.
Disclaimer: This page is general education, not financial or investment advice or a personal recommendation, and it doesn’t take your circumstances into account. Examples are hypothetical, for illustration only, and not an invitation to buy or sell. Learning a strategy doesn’t guarantee profits. Past performance is not a reliable guide to future results. Futures, spread bets and CFDs are complex and carry a high risk of losing money quickly because of leverage, and most retail traders lose money. With a real futures account, losses can exceed your deposit. Only trade with money you can afford to lose, and speak to an independent FCA-authorised adviser if you’re unsure. If trading is affecting your wellbeing or finances, see when trading stops being healthy. Read our full risk warning.