Daily loss limit
Definition · Level 9 · Risk & portfolio
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A maximum loss for one day, fixed in advance. When it is hit, you stop trading until the next day.
Example
A 2% limit on a $200,000 account: down $4,000 by 11 a.m. and you are done for the day.
Where Tradecraft teaches it
Level 9 · Risk & portfolio, in the lesson “Process: limits, rebalancing & post-mortems”: The habits that keep risk under control: limits, fixed stops, rebalancing, a journal, and grading decisions rather than outcomes.
Related terms
- Outcome biasJudging a decision by how it turned out rather than by the information and process behind it, for example praising a rule-breaking trade because it…
- Post-mortemA review of a trade or a period that grades the decision and the process, not only the profit or loss.
- RebalancingTrading back to target weights after market moves cause drift, on a calendar or when a threshold is breached.
- Trading journalWritten log of each trade’s setup, entry, stop, size, R result and emotional state, used for later review.
- 1RThe dollar amount at risk on a trade (entry-to-stop distance × size), used as the unit for measuring every result.
- AlphaReturn earned above what the asset’s market exposure predicts: Rp − [Rf + β(Rm − Rf)].