How do you know when to stop trading for the day?


I received a very thoughtful question from one our members last week. What he wanted to know was “when do you know it’s time to stop trading for the day?” I’ve included his question and my reply below.

If you have a question that’s bothering you feel free to drop me a line at [email protected] I can’t guarantee that I have all the answers but I’ll do my best to clear things up for you.


When it comes to selecting high probability trades (meaning trades with a positive expectancy) do you have a daily maximum portfolio liability that essentially means you stop trading. People keep talking about taking each trade but no one talks about the specific of whether you are supposed to continue trading high probability trades even if an overall loss is mounting up during a single.

I hear some say you must continue because it’s all part of the normal distribution and you don’t know when the losing streak will end so if you stop you could possibly lose out on the next available trades being winners that could eat up your liability (especially if your trading a system where there is the potential to take more profit than you lose).

But others have said they have a maximum liability for a single day to protect their account. The two answers seem in conflict and am not sure what your take is on this.

I have studied normal distribution and it would seem it’s impossible to know what will happen in terms of the next sequence of trades so are we supposed to just trade through with at least some idea of the maximum expected losing streak based on the win rate of the system we use. If we stop are we guilty of violating the whole process of probabilities? -James.


Great questions James. You’re on the right track. Most traders never even consider that protecting their capital should be their #1 priority as a trader. Well done!

In my experience, the best course of action to take to limit mounting losses is to have a max loss number – a pain threshold if you will – where you say “Uncle” and stop trading for the day. For me this is 5% of my capital. I know that if I take a 5% drawdown on the day then something is not “right” and it’s probably best I stop trading (or go into sim mode).

5% is an amount I can usually recover in a day or two, so it’s not like it cripples my account, which is what you want to avoid (obviously).

I understand the discipline of “take the next signal regardless”, but like a lot of things trading related, it makes more sense in theory than in real life. Theory says that the next signal could be the big one, and that’s true, but then again, it might not. Therefore I think you need to balance the “take the next signal” with “what is my max loss?” question.

I’m also a big believer in trade quotas and by that I mean limiting the number of trades I take per day. For example, some of my best days have been where I take 2 – 4 trades. Some of my worst have been when I take 6+. At its root, each trade has a 50/50 chance of being profitable. But probabilities decline drastically each time you take a trade so I take the “less is more” approach.

This also allows me to be choosy about the trades I want to take. After all, if I know I’m only taking 3 trades today I don’t need to “chase” a trade I’m not comfortable with.

Then there’s the “life” of the market as well. Markets don’t move at a steady pace all day. They tend to start strong, fade towards the middle and then make another move going into the close. This isn’t always the case, but is close enough to the norm to be a rule of thumb. Therefore I want to concentrate my trading efforts when the market is most likely to be moving, namely the first hour (or two) and the last hour.

While a big move through the middle is not impossible it is unlikely. Therefore if I am looking for my better trading opportunities it will be during those times.

In practice, I usually just focus on the morning session. I think this is the most popular time to trade for the majority of the markets. If I miss a big move later in the day – so what? I’ve likely already made my quota and (hopefully) finished the day with a profit.

Tomorrow is another day.

Traders Helping Traders weekly Support and Resistance ezine

9 charts in this issue: cocoa, sugar, copper, feeders, bonds, crude oil, Canadian dollar, Japanese Yen and the British pound.

It’s looking like the Stock Market might finally have broken loose from its bullish moorings as we saw resistance hold this week. That’s brought some much needed volatility to the market. Things were getting to be a little boring, waiting for the markets do something. And not just the stock markets. The quiet, sideways nature is evident in almost all the markets from currencies to cattle to corn.

But we did see some bigger moves start this week and fortunately we were able to get on board with most of them. Bonds gapped us a bit, but I’ve got a back-up plan to get back in. Overall it’s nice to see the markets moving again and just in time for Spring.

Speaking of Spring, it snowed again this weekend. It never snows here at this time of the year. That’s going to put a serious wrinkle in this year’s Flower Count

Enjoy this week’s issue,

[email protected]


Currencies Market Overview

British Pound

Are you getting the impression that the British Pound is playing with us? Thursday saw the market make a very bullish day and it even looked like it was going to break out of the pennant formation that has been building, until Friday that is when everything reversed on itself.

The problem is the big rally day from January 17th. This showed some serious buying off the low end of the trading range and suggested we would see another move higher. But I’ve been waiting all of February without another bullish push so now I’m left to wonder whether the buyers were serious about a rally, or not?

Since the resistance around Friday’s highs seems to be holding I’ll continue to look for a buying opportunity above the 12600-ish area. I’ll keep my entry a little further away so as to avoid an opening gap in a strong rallying market, but to be honest unless the bulls wake up I doubt I’ll see a fill.

If the March British Pound opens at or below 12640
BUY 1 March British Pound (6B) at 12640 (stop)(day)

If filled: Exit Stop: 12340 (stop)(GTC)
Approximate Risk: $1875
Profit Target: TBA
Degree of Risk: Moderate to HIGH

Canadian Dollar

The funny thing is when the Canadian Dollar started trading Friday morning and shot higher like a rocket, I thought we were going to get a runaway to the upside. But it didn’t happen. Shortly after filling my buy order the market turned on its heels and headed lower, squashing each rally attempt for the rest of the day. This is putting a serious strain on my long position and might lead to lower prices next week.

I’ll leave the stops at their original placement but I did consider jamming them under Friday’s lows and taking the early stop out. The market needs to turn around early next week and get above last week’s highs or I’ll have to get a lot more aggressive with the trade. But for right now I’ll stick with Plan ‘A’.

CONTINUATION of Long 1 March Canadian Dollar (6C) at 7660 (February 24)
Exit Stop: 7550 (stop)(GTC)
Approximate Risk: $1100
Profit Target: TBA
Degree of Risk: HIGH

Japanese Yen

I was happy to see that the Yen was getting a little more cooperative and put in a nice rally day to finish last week. This puts the market trading right back at the prior swing high and significant resistance level. The plan is to see the Yen close above the 90000 mark (March) this week. That will give me a chance to adjust my stops a bit. I’ve only got a couple of weeks left on this contract however, so I might have to set a tight profit target – assuming the trade gets into the black!

CONTINUATION of Long1 March Japanese Yen (6J) at 89440 (February 6)
Exit Stop: 87000 (stop)(GTC)
Approximate Risk: $3050
Profit Target: TBA
Degree of Risk: Moderate to HIGH

Energies Market Overview

Natural Gas

Watch List – Now that April Natural Gas has closed above the 2700 resistance line there’s every reason to believe the market will continue to rally – for the short term. Long term I think we’ll see the market head lower, but I haven’t decided where I want to attempt another short position. The problem is the wide stop I need to run right now to make a trade work. Maybe if we get a strong reaction off resistance, I’m thinking the 3000 area, that might be a better price to sell. But we’ll see what Monday brings. That might clear things up a bit.

Crude Oil

Like I mentioned in last week’s night update, I can’t help but think that all this waffling by Crude Oil is just a reason for prices to fall lower. In spite of apparently bullish news, the market is content to drift sideways. Well you know what they say: you need to feed a bull market everyday but not a bear market. Therefore I’m thinking the market’s hesitation to move higher *might* see Crude Oil prices drift lower, at least for the short term.

If April Crude Oil opens at or above 5300
SELL 1 April Crude Oil (CL) at 5300 (stop)(day)

If filled: Exit Stop: 5500 (stop)(GTC)
Approximate Risk: $2000
Profit Target: TBA
Degree of Risk: Moderate

Financials/Indices Market Overview

30 Year Bond

Darn it! The Bond market gapped my order on Friday and left me on the sidelines while prices put in a really strong rally, sparked by the meltdown in the stock indices the last couple of days. I’m not going to watch this one go on without me so I’ll run another buy order for Monday. Hopefully this time I’m not going to get gapped! I liked the earlier trade though because it kept risk to a “minimum”. I put that in quotes because at $31.25/tick Bonds are a pretty expensive market to trade. If this one is out of reach for your account you might consider buying a call option instead of the outright Futures.

If the June 30 Year Bonds open at or below 152-16
BUY 1 June 30 Year Bonds (ZB) at 152-16 (stop)(day)

If filled: Exit Stop: 148-08 (stop)(GTC)
Approximate Risk: $4250
Profit Target: TBA
Degree of Risk: Moderate

Grains Market Overview

Soybean Oil

Took a tidy profit on the Bean Oil trade Friday and am on the lookout for another selling opportunity in the May contract. I suspect there might be a little pullback first, maybe even as high as 3350, before the next good chance to short.

COMPLETION of Short March Bean Oil (ZL) at 3420 (February 13)
Profit Target: 3234 (February 24)
Approximate Profit: $1116

Meats Market Overview

Feeder Cattle

As it turns out I didn’t have to worry about Feeder Cattle gapping my entry Friday morning as the market was uncharacteristically civilized. I don’t regret giving up a few points on the way down however and now that I’m short I’m really happy to see the market close on the lows. This means we’re going to see a serious retest of the support at the 12000-ish range come Monday. And given the current momentum I don’t think we’ll see a really big bounce, if we get one at all.

CONTINUATION of Short 1 March Feeder Cattle (GF) at 12300 (February 24)
Exit Stop: 12700 (stop)(GTC)
Approximate Risk: $2000
Profit Target: TBA
Degree of Risk: Moderate

Metals Market Overview


I don’t know what happened to the Copper market, but the bears put on the brakes in a big way last Friday and couldn’t get below Thursday’s low, in spite of the monster sell off the day before. I really hate it when this happens because matching lows have a way of bouncing the market higher and while I might be reacting too early I think I’ll err on the side of caution and jam the stops in at breakeven for Monday. I’ll also run a profit target in case the market bounces around a bit first.

CONTINUATION of Short 1 May Copper (HG) at 26940 (February 23)
Exit Stop: 26940 (stop)(GTC)
Approximate Risk: $0
Profit Target: 26600 (limit)(GTC)
Approximate Profit: $850
Degree of Risk: Moderate to HIGH

Softs Market Overview


As you know I’m not a big fan of countertrend trades, but the setup we have in Cocoa is almost too good to pass up. Last week we saw the market react to support around the 1900 (May) area. This is significant. For the next two days the buyers were unencumbered by the sellers, closing each day on/near the highs. That means there is some serious buying going on here folks and that could translate into higher prices this week as well.

The sellers did their best to push the buyers back but didn’t manage all that well going into the weekend. I’ll setup to buy the market on a push above Thursday’s highs. My fear is of an opening gap voiding my trade, but with Friday’s session closing on the lows the buyers are going to need some serious momentum if they’re going to fill my buy order.

If May Cocoa opens at or below 2040
BUY 1 May Cocoa (CC) at 2040 (stop)(day)

If filled: Exit Stop: 1880 (stop)(GTC)
Approximate Risk: $1600
Profit Target: TBA
Degree of Risk: Moderate


Sugar didn’t hit my exit stop – yet. I’m obviously on the wrong side of the market and at this point all I can do is my best to minimize the “hit” I’m going to take. I’ll run a breakeven profit target as well as keeping my stop loss in play. I’ll also be keeping my fingers crossed and will put on my lucky socks. But I think it’s too little too late.

COMPLETION of Long 1 May Sugar (SB) at 2070 (February 21)
Exit Stop: 1970 (stop)(GTC)
Approximate Risk: $1120
Profit Target: 2070 (limit)(GTC)
Approximate Profit: $0
Degree of Risk: HIGH

Sugar chart

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