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A number written down in advance that stops a bad day from becoming a bad week
Published by The Retail Trader · JUL 28, 2026 · Risk Management
Every trader has days when nothing works. The damage on those days comes not from the strategy but from continuing to trade. The max daily loss rule prevents exactly that.
You decide a number in advance. If you lose more than this in one day, no more trading today. Screen off, terminal closed.
This number should be a small percentage of capital, and it should be a few multiples of your normal per-trade risk, not a very large multiple of it.
Its benefit lies more in behaviour than in math:
• Decision quality drops after a loss. This is documented human behaviour.
• Size grows when you try to recover, and that is where the biggest day comes from.
• With a fixed limit there is no need to make a decision at all.
• The next day starts with your full capital, not half of it.
This rule works only if it was written down beforehand with a calm mind. Setting a limit in the middle of a loss always lands on whatever number feels convenient at that moment, so that number cannot be set at that moment at all.
This article is for educational purposes only. It is not a buy or sell recommendation, not a claim of guaranteed returns, and not advice. Rules, rates and mechanics change from time to time at the exchanges, SEBI and the RBI, so verify every number yourself with your broker or an official source.