Learn Algorithmic Trading

Stop-loss

The first risk limit we will look at is quite intuitive and is called stop-loss, or max-loss. This limit is the maximum amount of money a strategy is allowed to lose, that is, the minimum PnL allowed. This often has a notion of a time frame for that loss, meaning stop-loss can be for a day, for a week, for a month, or for the entire lifetime of the strategy. A stop-loss with a time frame of a day means that if the strategy loses a stop-loss amount of money in a single day, it is not allowed to trade any more on that day, but can resume the next day. Similarly, for a stop-loss amount in a week, it is not allowed to trade anymore for that week, but can resume next week.

Now, let's compute stop-loss levels on a week and month for the ...