Bear Bull Traders | DAS Risk Controls Part 1: Max Loss

DAS Risk Controls Part 1: Max Loss

I traded for years without learning about Risk Controls. I carried the entire weight of trading on my own shoulders, never knowing there was a simple way to alleviate so many pressures inherent to trading.

What are Risk Controls? Do yourself a favor and read about Risk Controls on our forum here.

Then watch this video to get a deeper understanding of just how powerful Risk Controls can be.

If you read the forum post and watched the video you are far ahead of the game now in understanding what Risk Controls can do.  But lets focus on just one Risk Control for now: Max Loss.

How many of you have a Max Loss per day that you say you will stop trading at if you hit that number. Maybe it’s $100. Maybe $1,000. Or maybe it is a percent of your account, like 1%. Or maybe it’s a function of your risk per trade, such as you risk $ amount R per trade, and only willing to lose 3R per day.  Whatever your max loss is, now lets ask the hard question that I already know the answer to.

How many times have you traded PAST your max loss? How many times have you hit your max loss, stopped for a moment, thought about ending the trading day, but convinced yourself to make 1 more trade because you are certain you can “win back your losses”. You are certain if you just increase your share size, and take 1 good trade you can be green on the day . . . and then 1 hour later you are at 5x Max loss, or 10x max loss, or if you are like me, I once hit 50x my max loss in one single day. Yeah, you are not reading that incorrectly. Luckily I didnt blow up my account that day.

Imagine for a moment when I was at 1x Max Loss and had to make this decision . . . Do I stop at my max loss? Or do I continue trading? Or rather, do I respect my rules and show off my discipline, or do I throw caution in the wind, trade by the seat of my pants and start to gamble? I made the wrong decision that day. I believed I could make my money back. Now imagine if I had a Coach, or a Boss, or a Teacher or even a Parent standing right there making the decision for me. Imagine if it was out of my hands and they simply said . . .

“William, You hit your predefined Max Loss. You are done for the day. Get out of here and cool off. You can come back tomorrow, but no more trading today”.

Imagine if I was FORCED to stop trading, against my own will. As kids we are forced to do so many things against our will. In most jobs we have a boss that tells us what we can and cannot do. In School we have teachers and we get grades. In sports we have our coach that can bench us, but in trading . . . who are we accountable to? Only ourselves. Who can discipline us? Only ourselves. Who can force us to stop? Only ourselves. Combine that with the pressure we put on ourselves knowing each and every trade we are earning or losing money, and we might have to finish our work day with less money than when we started . . . What other profession do you LOSE money on any given day? What other profession can you seriously lose your entire account with a couple clicks of a button in a matter of a few minutes? Not many.

BUT, and this is such a big and amazing BUT . . . As traders, we actually do have something that can hold us accountable, that can force us to keep to our plan, that can take the weight of discipline off our shoulders. And that is Risk Controls.  Simply Put, Risk Controls automatically enforce the rules we set in our trading plan and takes the decision making process out of our hands in the heat of the moment. I will assume you read through the blog post and watched the video and have a basic understanding of what Risk Controls are now.

Through DAS, we have the ability to “hire a coach” to be “overseen by a boss” to be “held accountable by a teacher”. But the beautiful thing is, WE are the Coach, the Boss and the Teacher. We are our own Trading Coach. We set our own rules when we are calm and not in the market and aren’t feeling the pressure of having to trade. We get to set the rules when we are level headed. We don’t have to do anything else. DAS will enforce the rules for us.  Setting a Max Loss Risk Control takes so much emotional weight off our shoulders, and lets us just focus on looking for smart setups and good trades, rather than being scared of having to choose to stop trading or not. So if you skipped over the forum post or the video, I’ll ask one final time, do your future self a favor and research Risk Controls and consider putting a Max Loss on your account.