The worst time to decide how much you are willing to lose is in the middle of losing it. A risk policy is the set of limits you agree to in advance, in calm, and write down — so that when a position is going against you, the decision has already been made by a clearer version of yourself. The bot's job is to enforce that policy without negotiation.
What a risk policy contains
A complete policy answers, in numbers, every "how much" question before it can be asked under pressure:
- Risk per trade — the most you will lose on any single trade, as a small percentage of the account.
- Daily loss limit — the hard cap that stops trading for the day once hit.
- Consecutive-loss cooldown — the streak length that forces a pause and how long that pause lasts.
- Maximum drawdown — the deepest peak-to-trough fall you will tolerate before the bot halts.
- The kill switch — when the global and per-strategy stops fire, and who is allowed to clear them.
Why writing it down changes everything
An unwritten limit is a feeling, and feelings move with the market. A written policy is a commitment you made when nothing was at stake, which is exactly when judgement is best. Putting it in writing also lets the bot enforce it mechanically — the rules act the same whether you are watching or asleep, confident or rattled.
Decide it calm, enforce it always
The sequence matters: write the policy first, validate every limit in paper trading, and only then let it govern live funds. A policy that is edited mid-drawdown to avoid a stop is not protecting you — it is being dismantled at the precise moment it was meant to work. Treat the document as a contract with yourself.
Build the policy piece by piece: per-trade and daily limits, a consecutive-loss cooldown, a drawdown threshold, and the kill switch. Then prove it all in paper trading before going live.