forex-scalping.com

Which limit binds first? A day by day walk on a $100k account with a 5% daily loss and a 10% static max loss

Rules, illustrative: $100,000 start, a static max loss of 10%, so the floor is $90,000 permanently, and a daily loss limit of 5% of the day's starting balance.

Day 1: start $100,000. Loss of $3,000, close $97,000. The daily limit gave $5,000 of room and the overall floor gave $10,000, so the daily limit was the tighter one.

Day 2: start $97,000. The daily limit is 5% of that, $4,850, giving a floor for the day of $92,150. The overall floor is $90,000. Loss of $2,500, close $94,500.

Day 3: start $94,500. The daily allowance is $4,725, which would put the day's floor at $89,775. That's below the permanent floor of $90,000, so the permanent floor is now the tighter one. The most you can lose today is $4,500, not $4,725.

The crossover comes where 5% of the balance equals the balance minus $90,000, which is $94,737. Below that, the daily limit stops mattering, and a single bad day of $4,500 ends the account.

Sizing that looked fine at the top is different down there. At 1% risk, $945 on a $94,500 balance, you're 4.8 losing trades from the floor. Laid out as a table, the start of day balance, the daily room and the room to the floor:
$100,000: $5,000 daily, $10,000 overall. Daily binds.
$97,000: $4,850 daily, $7,000 overall. Daily binds.
$94,500: $4,725 daily, $4,500 overall. Overall binds.
$92,000: $4,600 daily, $2,000 overall. Overall binds.

The rules page usually prints the daily number and rarely prints the crossover. Check the exact definitions on your firm's rules page too, since the starting point for the daily figure varies.

The day by day walk makes it clear. In short: early on, the daily limit binds, and once the account has dropped a fair way the static floor takes over, because 5% of a smaller balance can reach below it. Worth noting too that some firms calculate the daily limit from the higher of balance or equity at the start of the day, which changes the walk if trades are held overnight with floating profit.

Definitions differ in ways that change the numbers. Some firms measure the daily limit from the previous day's closing balance, some from the higher of balance and equity at the reset time, and some include floating profit and loss while others only count closed trades. Under an equity based rule, a floating loss of $4,900 on a $100,000 day already uses up nearly all of the daily allowance even though you've closed nothing. It can hit when a position is simply open overnight and marked down. If you hold anything across the daily reset, read how the opening reference is calculated.

I wish I'd seen this walk before my second funded account. I was down to roughly 94.8k after a rough week and still thinking in terms of the daily limit, which felt like plenty of room. I took a normal sized day, had four losses in a row on a choppy Friday, and ended up only a few hundred dollars from the static floor with no idea how close I'd come until I checked the dashboard.

What I do now is keep a small table on my desk with three numbers updated every morning: today's daily room, the distance to the permanent floor, and whichever of those is smaller divided by my risk per trade. That last figure is the number of losing trades I can take today before the account is in danger, and when it drops under five I cut size in half.

The equity point in the replies is worth repeating too. One firm I traded with measured the daily drawdown on floating equity, so a position held overnight in profit actually raised the next day's reference point and made the limit tighter than it looked.

One way to use the crossover is to shrink the risk as the drawdown grows, not keep it fixed. At $94,500 the remaining room to the floor is $4,500. Risking no more than 10% of the remaining room on any one trade gives $450, which is 0.48% of the balance, so about half the risk per trade you'd use at the top. Each loss shrinks the allowed size a bit more, and each win lets it grow. It works against the pull to increase size to get back to even, and it keeps the number of trades you can lose in a row from collapsing as the account falls toward the floor.

A quick note for the morning makes it automatic. Daily room is the smaller of two numbers: 5% of the starting balance, and the starting balance minus $90,000. Start at $96,000: 5% is $4,800 and the distance to the floor is $6,000, so the room is $4,800. Start at $94,000: 5% is $4,700 and the distance to the floor is $4,000, so the room is $4,000. Write the room on the screen, convert it into R at your current risk per trade, and you see how many full size losers you can take today before an account ending event.

The climb back looks different too. From $94,500, getting back to the $100,000 start needs a gain of $5,500, which is 5.8% of the current balance. Reaching the $110,000 target needs $15,500, which is 16.4% on the current balance. The target is measured from the starting capital, so a drawdown early in an evaluation makes the percentage needed on what's left higher. That's why a drawdown of 5.5% in the first week feels so heavy: the climb back to even is 5.8%, and the climb to the target is about three times the size of the fall. Early losses cost more than their face value, because they shrink the base that every later percentage is measured on.