A weekly loss cap and the Friday problem

[Shadow Trader]

Daily limits stop a single bad day. Weekly caps prevent a bad week from becoming a disaster.

Here's the scenario: Monday loses one percent, Tuesday loses one percent, Wednesday loses one percent. Each day stayed inside its limit, but the week is already down three percent and the mood is poor. Thursday tends to be a dangerous day, since the temptation to recover grows.

A weekly cap, say three or four percent, steps in as a second layer. Once reached, trading stops until the following week, with time spent reviewing instead.

The cap also changes behaviour on good weeks. Some traders add a profit-protection rule, reducing size after a strong week to avoid giving back gains through overconfidence.

One detail worth deciding in advance is what counts as the week. Resetting on Sunday evening, Monday morning in London, or Monday's New York open produces slightly different totals, and the cap works best when the boundary is fixed and written down so it can't be argued with mid-week.

How does the week look when the cap is hit early, and what gets done with the remaining days?