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Clarifying the 2% Maximum Weekly Loss Rule

 

Some traders have questions about the Maximum Weekly Loss risk parameter or fail to consider it altogether. Therefore, we’ve written this article to clarify what it is and provide some examples of how you can avoid violating the rule.

First, the Maximum Weekly Loss rule is present on only Standard Stage 2. It takes the place of the Maximum Daily Loss rule that’s in effect on Stage 1.

The Maximum Weekly Loss rule is there to ensure that traders more closely and effectively manage their risk and preserve any profits that they’ve made.

It can also better help differentiate quality traders and asset managers from “gamblers” (those who place trades relying purely on luck or some other “casino”-style systems).

 

How does the 2% Maximum Weekly Loss rule work?

It operates similarly to the Maximum Daily Loss, but does so based on the last seven calendar days, rather than just a single trading day.

 

Example #1

If a trader has had a maximum portfolio value of $30,000 and he has not traded over the past 7 calendar days (i.e., the portfolio is still at $30,000), then the loss amount the trader should avoid is $600 (2% of the portfolio value).

 

Example #2

If a trader has had a maximum portfolio value of $32,000 over the past 7 calendar days – that is, a profit of $2,000 was made – the loss amount to be avoided over the following 7 calendar days is $640 ($32,000 multiplied by 2%).

 

Example #3

Consider the following example of a trader (let’s call him “Mr. Smith”), who was stopped-out on Stage 2 due to a violation of the Maximum Weekly Loss rule.

 

Feb 19

- New account granted to Mr. Smith with a starting capital balance of $100,000.

 

Feb 20

- Mr. Smith has made a few profitable trades, so his end-of-day balance has increased to $102,001.04 (+1.99%).

 

Feb 21

- Mr. Smith lost money on his trades such that the balance on his account has fallen to $99,980.00.

- That is, it fell by 1.98% in relation to the maximum balance for the last 7 calendar days (the $102,001.04).

- Please note that the system would automatically stop-out Mr. Smith’s account if the balance would have fallen to $99,957.00 or lower (1 – 99,957.00 / 102,001.04 = .02 = 2%).

 

If Mr. Smith wanted to strategically give himself more breathing room to avoid triggering the weekly loss parameter, what should he do?

He would probably wait until Feb 28 – i.e., Feb 21 + 7 calendar days – so the maximum weekly balance would become the balance he had on Feb 21 – i.e., $99,957.00 

If Mr. Smith was impatient and made trades that drew him down that extra 0.02%, he would lose his Stage 2 account accordingly and return to the beginning of Stage 1.

We would encourage all traders to pay attention not only to the 4% Maximum Loss Rule (part of both Stage 1 and Stage 2), but also the 2% Maximum Daily Loss (Stage 1) and 2% Maximum Weekly Loss (Stage 2).

It’s imperative that all rules are followed along the way. Accordingly, please carefully understand all requirements related to each Stage before starting it, so that you will have a better chance of passing it.

To avoid the 2% Maximum Weekly Loss rule, please consider trying the alternative method of passing the second stage – Competition Stage 2 – where no Maximum Weekly Loss rule is in effect.

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