Risk management for rules-based trading

01Position sizing

Position size is how many contracts you trade. Two common approaches:

• Fixed size: the same quantity each trade. Simple, and easy to compare in testing.
• Risk-based size: choose the amount you are willing to lose on a trade, then divide by the distance to the stop in dollars per contract. A wider stop gives a smaller size, so each trade risks a similar amount.

Whichever you use, size relative to the account and its rules, not to your confidence in a trade. Futures contracts carry leverage, so a size that looks small can still move an account fast.

02Stops, daily limits and drawdown

• Per-trade stop: every entry should have a defined exit if it is wrong, ideally placed as a working order rather than a mental note.
• Maximum daily loss: a rule that stops the strategy for the day after a set loss. It prevents one bad session from becoming a disastrous one. A strategy can enforce this itself and flatten positions when the limit is hit.
• Maximum consecutive losses or trades per day: another guard against a strategy misbehaving in unusual conditions.
• Drawdown: the fall from an equity peak to a later low. Your backtest's worst drawdown is not a ceiling; live drawdowns can exceed it. Decide in advance the drawdown at which you would pause the strategy.

03How prop firm rules change the picture

Proprietary trading firms that fund traders through evaluation accounts usually impose rules. The details differ by firm and change over time, so always read the current rules of the specific programme. At a general level you will meet:

• Daily loss limits: a maximum loss allowed in a single day.
• Trailing drawdown: a loss limit that follows your account's highest balance upward, so the room you have shrinks relative to your balance as you make gains, depending on how the firm defines the trail.
• Contract limits and other restrictions on size, holding times or trading around news.

A strategy that backtests fine on a standalone account can still breach these rules, because the rules care about the path of the account, not just the final result. Build the limits into your testing by replaying the trades against the firm's drawdown rules, and keep a buffer instead of trading right up to the line.

04Running several accounts

Some traders operate more than one account at once, for example several evaluation or funded accounts. Placing identical trades by hand across them is slow and error-prone. A trade copier replicates orders from one account to others, and Affordable Indicators offers a Trade Copier for NinjaTrader aimed at this. Check each firm's rules about copying and multiple accounts before using any copier, as policies vary and are the trader's responsibility.

Copying also multiplies risk. If the strategy has a problem, every copied account has the same problem at the same moment.

05A short checklist before going live

1. Is the maximum loss per trade defined and automatic?
2. Is there a daily loss rule?
3. Do I know the drawdown at which I will stop?
4. Have I checked the account provider's rules against the strategy's behaviour?
5. Do I have a plan if my connection or computer fails?

Then move through the stages in forward testing. Futures trading involves substantial risk of loss.

FAQFrequently asked questions