When trading with a prop firm like Cointracts, managing your risk to stay within the prop firm daily drawdown limits is one of the most important rules you need to master. Failing to do so can lead to automatic account closure even if your overall strategy is profitable.
This article breaks down how to adjust your risk management strategy effectively to comply with Cointracts‘ daily loss rules and maximize your chances of success.
Understanding Cointracts’ Daily Drawdown Rules
Cointracts enforces a strict 5% daily drawdown limit on all funded and evaluation accounts. This means that your account balance cannot drop more than 5% in a single trading day, which is crucial to avoiding exceeding the prop firm daily drawdown limit. For example, if you’re trading with a $50,000 account, your maximum allowable loss per day is $2,500. If your losses exceed this, Cointracts will automatically close the account.
Why Adjusting Your Risk Management Is Crucial
Meeting the daily drawdown limit requires more than just having a solid trading strategy it demands meticulous risk control. Here’s why:
- Protects Your Account: By staying within the daily loss limit, you keep your funded account safe from closure.
- Promotes Discipline: Sticking to risk rules keeps your emotions in check and prevents revenge trading after losses.
- Improves Longevity: Good risk management ensures you can trade another day, increasing your overall profitability chances.
Step-by-Step Guide to Adjust Your Risk Management Strategy
Calculate Your Maximum Daily Risk
Start by determining your daily loss limit based on your account size and Cointracts’ 5% rule.
Example:
Account Size: $50,000
Max Daily Loss: 5% × $50,000 = $2,500
This means you must ensure your cumulative losses never exceed $2,500 in one day according to the prop firm daily drawdown rules.
Use Smaller Position Sizes
Adjust your position sizes so that your potential loss per trade fits comfortably within your daily risk allowance. If you risk too much on one trade, a few losing trades could breach your limit.
Always Place Stop Losses
Set stop losses for every trade to cap your losses. Your stop loss amount should be consistent with your risk tolerance and daily drawdown limit.
Limit Number of Trades Per Day
Avoid overtrading, which can quickly accumulate losses. Focus on quality setups that offer a higher probability of success.
Monitor Your Running Daily Loss
Keep track of your daily losses throughout your trading session. When you approach your daily limit, stop trading to avoid automatic disqualification.
Adjust Risk Dynamically Throughout the Day
If you lose some portion of your daily risk early on, recalculate your remaining allowable loss and adjust trade sizes accordingly for the rest of the day.
Putting It All Together: A Practical Example
Imagine you start your trading day with a $50,000 account:
- Your daily drawdown limit is $2,500.
- You risk $500 per trade with stop losses in place.
- After 3 losing trades, you’ve lost $1,500, which leaves $1,000 of your daily risk remaining.
- You then reduce your position size to risk no more than $250 per trade to stay within the remaining limit.
- You stop trading once you lose the $2,500 daily limit.
Successfully passing a prop firm challenge like Cointracts means mastering not just trading strategies but also disciplined risk management. By carefully calculating your daily risk, controlling your position sizes, placing stop losses, limiting trades, and tracking your losses, you can meet the prop firm daily drawdown limits and keep your account funded.
Start incorporating these risk management adjustments today to protect your capital and increase your chances of long-term success with Cointracts.