For Business

Risk & Money Management

How to Set a Weekly Loss Limit

A weekly loss limit is a number set before the week, past which no more is risked until the next one, so that a run of bad days is capped as a whole and not only one day at a time. This paper shows you a 6% limit on a 10,000-dollar example account and one example week run against it, 520 down after four days with 80 left for Friday; the idea as a jar of coins filled on Monday; the days as bars against the line; the daily limit drawn as a box inside the weekly one, and how the day's box shrinks; and the History tab with a custom period on your platform, whose Profit total is the count.

Difficulty
Intermediate
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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One week against the limit

A weekly loss limit is a number set before the week, past which no more is risked until the next one. Take six per cent of a 10,000-dollar example account, 600 dollars, and one week in example figures: Monday loses 150, Tuesday makes 80, Wednesday loses 200, Thursday loses 250. The week stands at 520 down with 80 left. Friday is not cancelled; it is 80 dollars wide, and every trade placed on it, added together, may risk no more than that. A daily limit fixes the worst a day can be. This one fixes the worst a run of days can be, and it is the run, not the day, that empties accounts.

A jar of coins for the week

Picture a jar of coins set out on Monday morning, 600 dollars' worth. A losing day takes coins out; a winning day puts a coin or two back, but it never makes the jar bigger than it was on Monday. A weekly loss limit is that jar. By Thursday night most of the coins are on the table and a few are left in the glass, and those few are all that Friday may lose. When the jar is empty the week is over, whatever the day. On Monday it is filled again to the same mark, and the new week starts with the whole rule and none of the old week's losses, which is the other half of what the jar is for.

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