Rule #3: Don’t use up your daily loss limit completely

Prop trading opens up enormous financial and professional opportunities for traders. However, to take full advantage of these opportunities, discipline and effective risk management are essential. One of the most common mistakes made by novice traders is attempting to complete a stage in the minimum required time, such as three days. While this approach may seem very tempting, it often leads to unnecessary risk-taking. In reality, a patient and balanced approach yields much better results and minimizes the risk of significant losses.

If, in the first stage, the goal is to achieve an 8% return, and in the second stage, 5%, it’s easy to conclude that the daily profit target should ideally be around 1%. Of course, not every day will end with exactly this result, and sometimes market conditions will allow for higher profits. However, excessive pursuit of maximum profits or a rapid stage completion often leads to impulsive decisions and a disregard for fundamental principles—such as capital preservation, a core rule.

Imagine you aim to achieve a 1% profit today. If this is your goal, you should ask yourself whether it makes sense to risk 5% to achieve it. Risking 5%, the allowable daily loss limit, to achieve just a 1% profit is irrational and dangerous.

If you take this approach, every failed trade could result in losses far greater than the potential profits. At most, daily risk should equal the planned daily profit—in this case, also 1%.

In practice, this means that if your daily profit target is 1%, the maximum risk on a single trade should not exceed 0.2%. This approach provides a safety margin, allowing for several trades in a day without risking that a single loss will eliminate the possibility of making further attempts. This strategy is also more resilient to sudden market changes and mistakes that may occur during the day.

Let’s say, in your first trade, you risk 0.2% and achieve a 1% profit. In this case, you have psychological comfort—if the market remains favorable, you can continue trading. However, if market conditions turn against you, you need to define a boundary for ending the session. The best approach is to adopt a rule that, at worst, you will end the session where you started, at 0%. In other words, the 1% profit you’ve already earned becomes your psychological “cushion,” which you shouldn’t give up. If the market stops being favorable, you should stop trading, ensuring that your daily profit does not turn into a loss.

This rule is particularly helpful for traders who struggle to end a session with a profit. Many people feel tempted to continue trading after reaching their daily goal, hoping for even greater gains. Unfortunately, this often leads to a situation where they not only lose the profit but also end the day with a loss. Adopting the rule of limiting losses within the day’s profits helps avoid such situations and provides greater control over the final result—successfully completing the stage.

Respecting earned profits is one of the most important traits of a professional trader. Every profit, even a small one, represents a job well done, an effective strategy, and proper risk management. Allowing earlier gains to be wiped out by excessive risk devalues your work and achievements. Moreover, the psychological impact of such an event can be demotivating and lead to impulsive decisions.

For example, imagine you’ve earned a 2% profit through several successful trades but chose not to end the session. The market suddenly shifts and becomes unfavorable for your strategy. At that moment, instead of striving for additional gains, you should stop trading. If you’ve already given back the 2%, you should end the session there. It’s a tough decision, but it’s far better to end the day at 0% than in the red. Why?

If your balance falls below zero, the psychological stress is much greater. At that point, your goal shifts from executing your plan to desperately “getting back above zero.” Instead of calmly following your strategy, you’re trading under pressure, which often leads to further losses.

Many traders fall into the trap of the “breaking even” mentality. In this mode, every decision becomes a desperate attempt to recover what was lost. Psychologically, “breaking even” is far more taxing than starting fresh. That’s why it’s so important to avoid letting your balance turn negative after previously achieving gains.

If you allow yourself to use up the entire daily loss limit, you risk ending the session at a level that is psychologically difficult to accept. Anyone who has ever tried to “break even” after a significant loss knows how much such a situation affects the ability to make rational decisions. The best practice, therefore, is to establish a mental stop-loss at the level of your earned profit.

If your daily goal was to achieve 1%, after reaching that profit, ensure you don’t end the day in the red. If you’ve achieved a satisfactory result during the session, it’s always worth considering ending the session.

Prop trading offers immense opportunities but requires great discipline and risk awareness. Instead of chasing quick profits and completing a stage in the shortest time possible, a more effective approach is one based on steady and systematic capital growth. The key is proper risk management, which involves setting daily risk limits aligned with daily profit goals.

With such an approach, traders not only increase their chances of success but also minimize the risk of significant losses that could undermine previous achievements. Respect your earned profits, and if market conditions stop being favorable, end trading within the day’s profit rather than risking ending the day in the red. This discipline is a major step toward long-term success in prop trading.