A daily loss limit caps the damage of one bad day. On a prop firm account, crossing it usually fails the evaluation or closes the funded account on the spot. On a personal account it is a rule you set yourself, and one of the most effective defences against revenge trading.
How firms measure it
Read the exact terms of your firm; these are the questions that matter:
- From what? The starting balance of the account, or the balance or equity at the start of each day.
- Closed or open? Some firms count only closed trades, many count floating losses on open positions as well, so a trade can breach the limit before it is closed.
- When does the day reset? Midnight in the server's time zone, or 17:00 New York time are both common.
Example
A $100,000 account with a 5% daily loss limit measured from the day's starting balance: if the day starts at $102,000, the floor for that day is $97,000. You have $5,000 of room.
At $1,000 risk per trade, three more full losses would leave $500; a fourth would breach the limit. The decision to stop should come well before the limit, not at it.
A personal rule
Many traders set their own limit at two or three full losses a day, or at 2% to 3% of the account, and stop trading once it is hit. The journal shows whether the rule pays: compare the results of trades taken after the second loss of a day with the rest.
In SetupBook
On a Prop account, enter the daily loss limit in money. The dashboard's "Prop limits" card shows today's losses against it, a warning appears at 80% used, and the trade form tells you when the risk of the trade you are entering is larger than what is left today. Days follow your own time zone and count closed trades only, so if your firm counts floating losses or resets at another hour, keep a margin.