Find out your average and median net profits for a week over the time period of say 1 year. That average profit should be your "maximum maximum maximum" loss no matter what. I would quit trading for that day once this stop is hit.
Your mental conditioning that you have been raised with is very different from what you need to use for trading. The saying "cut your losses and let your profits run" sounds all well and good, but human basic nature is to do the opposite when put under stress. You make some gains, and as soon as there's any doubt about continued movement in your favor, the temptation is to cash out earlier than planned to preserve what was made. This is the same as cutting your profits. Next, when you are underwater, you don't want to close the position because that would cement the loss, which is a bad feeling. So the temptation is to wait and hope for a market reversal to bail you out, but if the market continues to move against you, you exit when the pain of continued loss gets high enough to force your hand. This is equivalent to letting your losses run. This results in you doing the opposite of what you desire, and the result is modest gains eventually wiped out by big losses. The reason is you obtain some type of satisfaction/pleasure for breaking your rules for pulling stops and revenge trading. It's no different than the person who wants to lose weight, but continues to overeat or someone who wants to save but still spends like crazy. The worst thing that can happen is when you get rewarded for pulling stops, and the market does reverse and bail you out. It blinds you to the danger/risk you are taking. It doesn't matter what you tell yourself what you want to do and just knowing what your bad habits are. As long as you are getting a mental reward for your bad habits you will continue despite wanting to stop. You need to set things up to remove that joy of not sticking to your trading plan when under pressure. Imagine if you were working at a prop firm and your boss gave you the following rules: 1) Every trade you make must have a specified entry, target, and stop loss price before the trade is placed. 2) Once entered, the stop can ONLY be adjusted to get smaller, not larger. 3) The value of your target profit must be at least 2:1 compared to your stop loss. 4) Stops can never be pulled. Placing a trade without stops or pulling stops will be grounds for IMMEDIATE TERMINATION. I bet you could follow those rules pretty well if your job officially depended on it. Your problem is you don't have a boss watching over you- you have to be your own boss, and this is where discipline comes in - to stick to your rules regardless of being tempted to break them. What you can do is modify the above rules to suit your specifics, print them out, and put then right above your monitor so it's always visible. Focus on sticking to every rule no matter what. Accept your loss before the trade is taken so the fear of loss loses its power over you. If you can place a bracketed order, you will be able to place your trade with a specified target profit along with your stop loss. All you have to do is vow not to monkey around with it and let it run its course to either hitting your profit target or it getting stopped out. You should feel rewarded if you are able to keep following your exact rules as printed- whether your trade makes a profit or not. That will form a new habit over time. I'm assuming your trading method/edge is able to determine a profit target and stop loss prior to entry. If not, you should be working on a sim until you have that figured out.
Thank you all for your thoughtful replies. Starting tomorrow I am going to size my positions relative to defined risk established before I put on a trade, risk much smaller amounts, and keep my stops in the market no matter what. Even if I get stopped on five trades in a row, I will still lose significantly less than what I lost today. At this point my focus is not about making money, I just want to get into good habits and prevent another one of the soul-crushing losses that I took today. The feeling is awful. I've heard it takes 100 days to get new habits ingrained to the point where they come naturally, so I am going to need to keep this updated daily for a while. Thanks again.
Just FWIW, depending on what you are doing (ie, Swing Trading) adjusting your stops to be smaller and having a 2:1 R/R ratio may not be practical or even wise. Depends on your product’s vol, trading range, trading frequency, and some other factors.
You don't necessarily need to eliminate the big losses. For instance, my winners are small, my losses are big, but I have positive expectancy. What you people need is an edge, instead of generalizing how to skin the cat, because there are many ways to do it.
it's all semantics, many small losses could be the same as a big loss, what you really need is positive expectancy.