Rule #2: Never let your account balance fall below the starting point

One of the most important rules every trader should adopt is to avoid situations where a profitable account suddenly drops below its starting point.

No matter if you’ve managed to gain 1%, 2%, or even 3% profit, if the balance returns to the starting level, this should be treated as a warning signal.

This situation is most often the result of taking excessive risks, and if your balance gets close to or worse, drops below the starting point, the best course of action is to close all open positions and take a break.

Psychologically, returning to the starting point, especially after a strong beginning, is incredibly challenging. It’s safe to say that losing what has already been earned feels more painful than starting from scratch, as humans naturally grow attached to their gains.

If, after a good start, your balance returns to the starting level, it’s worth stopping and analyzing what caused this situation. A break provides time for reflection and an objective look at your mistakes. Approaching it with the mindset of: “Nothing’s wrong, I’m back at the starting point, I’ll begin again” can work wonders for a trader’s psyche. This is the time to rethink and analyze what went wrong.

The length of the break is individual—some traders need just one day to recover, others may need several days, or even weeks. What’s important is not to return to trading too quickly, as unhealed wounds can come back like a boomerang. The bigger the loss, the greater the pressure and negative emotions, and these must be avoided.

When an account balance, after an initial rise, drops back to the starting point, it’s usually due to overly aggressive decisions—excessive risk taken at the wrong time. If you continue trading without stopping, there’s a high risk that the account will slip into negative territory, which increases psychological pressure. Decisions made under stress can lead to further mistakes, creating a spiral of losses that becomes difficult to control at a certain point. In such a situation, a trader may lose control over their emotions and begin ignoring all their rules.

Let’s say you start well with your account and achieve a 3% return. If you take risks and let the balance drop to the daily loss limit, the situation becomes much more complicated. In trading psychology, this is the point where dangerous thoughts like “I just need to get above zero” start creeping in.

You stop focusing on executing your plan and instead shift your primary goal to minimizing losses and getting the account back into profit. This defensive mindset not only makes it harder to return to proper trading habits but also negatively impacts the quality of your decisions.

From a psychological perspective, it’s easier to start fresh from zero than to recover from a negative balance back to the starting level. Each additional percentage loss below the starting balance becomes increasingly harder to recover. This phenomenon is known as the “anchoring effect”—the further you fall, the greater the pressure to recover, which often leads to impulsive and risky decisions.

If you’ve managed to generate a profit and then things start going wrong, stop and reassess your actions. A return to the starting level should be treated as a sort of “stop-loss” for your capital. This way, you protect yourself from psychological traps and increase your chances of success. Treating the starting point as a baseline from which to restart your efforts after analyzing your mistakes is a valuable habit to develop if you want to consistently pass verification stages.

When your balance approaches this level, don’t hesitate to close all positions, analyze your mistakes, and return to trading with a fresh perspective.

Let’s say your balance drops to -2%. Even at that point, you can still stop, but the closer you get to the daily loss limit, the harder it becomes to maintain a rational approach. If you allow the balance to drop close to that limit, you’ll feel trapped, and the pressure to recover the account to positive territory will be even more intense, deepening stress and increasing the risk of further mistakes.

One of the most important aspects of effective trading is the ability to reflect and analyze your actions. Taking a break after returning to the starting level gives you time to objectively assess what went wrong. Don’t treat the break as a waste of time—it’s a valuable opportunity to regain balance and rethink your decisions (remember, you’re not under a time limit).

Identify which decisions led to the loss of your profits and consider how you can avoid these types of mistakes in future attempts.

Every trader is different, and the time needed for such reflection is personal, as mentioned earlier. For some, a day off might be enough, while others may need several days or even weeks. What matters most is returning to trading with a clear mind, free from emotional baggage that could influence future decisions.

In prop trading, the rule “never let a profitable account drop below the starting level” is critical, though unfortunately often ignored. Losing profits that have already been earned is psychologically more taxing than starting from scratch.

That’s why when the account balance returns to the starting level, it’s the right time to stop, close positions, and analyze the situation. A break provides time for reflection and helps avoid decisions made under stress.

I dare to say that in all my failed stages where I had a strong start, the cause of the avalanche of mistakes was my failure to cut growing losses at the starting balance level and not giving myself the time to reflect on and process my mistakes.