Building a Prop-Style Risk Manager with Daily and Total Loss Limits
Summary
The article outlines a risk manager for a multi-strategy trading system, using two account safeguards: a daily loss limit that pauses trading until the next day, and a total loss limit that stops trading altogether. It defines reference values such as the initial base balance and the daily level, calculated from the higher of the day’s opening balance or funds. When a limit is breached, the described implementation closes open market positions.
Loss limits can be specified as a fixed amount, a percentage of the base balance, or, for daily limits, a percentage of the daily level. The article describes a class that tracks account values and limit states, and discusses how position allocation could be managed. It reports preliminary testing on strategy instances, but provides only a limited basis for judging performance. The implementation does not yet save and restore its state after an EA restart, so the author advises against using it on a live account in this form. Weekly or monthly controls and more gradual position reductions are suggested as future extensions.
Key ideas
- A risk manager can enforce separate daily and overall loss thresholds.
- A daily reference level can be based on the higher of the opening balance and funds.
- Loss thresholds may be fixed amounts or percentages of a reference balance or daily level.
- The described response to a breached limit is to close open positions and suspend trading.
- The implementation lacks state recovery after a restart, limiting its readiness for live use.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.