Risk After Dark

Lessons from the Darkside · Lesson 11

Every risk rule in here exists because I broke it first. The platform enforces them now, because I have met myself at 11 pm after a long day and I do not trust that guy with a mouse.

Everything in these lessons assumes you are still trading next month. These are the rules that make that likely. They are not complicated. They are hard to keep at 11 pm after a long day, which is why most of them are enforced by the platform instead of by me.

1. The daily loss limit lives in the platform

Before the first trade, every account I trade has a daily loss limit set in the trading platform. When it is hit, the platform closes the position and locks the account for the night. I do not decide this in the moment. I decided it during the halt, when I was calm, and the software holds me to it.

2. Three strikes

Three losing trades in a session and I am done for the session. Not for the game, for the session. Three losses in a row at night usually means I have misread the night, not that the fourth trade will fix it. The rule costs me a few good fourth trades a year and saves me a great many bad ones.

3. Stops go behind structure

The stop is placed behind the next logical barrier beyond my entry, the other side of the level, the IB low, the overnight VWAP, not a round number of ticks from the fill. On a thin book a tick-count stop is just a target for the next spike. If the structural stop is too wide for the size, the size comes down, or the trade is skipped.

4. Size is small and fixed

One or two minis. The night does not have the depth to let you scale out of three into a thin book, and I quit micros because they taught me to trade too often. Size is decided before the session and does not change because the last trade won.

5. Scale out, never hedge

First target at the nearest logical level, where I take part of the position and move the stop. The rest runs to the next level or gets stopped at break-even. I never hedge a futures position with another futures position; it is a losing trade wearing a disguise.

6. News is a risk event, not an opportunity

Asian and European data, central bank speakers and anything involving the yen can move a thin book through three levels in a minute. Resting orders come out before a release in my window. Open positions get their stop checked. The 8:30 am US data is not something my evening trades are ever exposed to.

7. Prop firm rules are risk rules

If you trade funded or evaluation accounts, the firm’s rules are part of your risk plan: the trailing drawdown that follows your high-water mark, consistency rules, rules about holding through news or through the 5 pm halt, and the minimum-day requirements for payouts. They differ by firm and change without notice. Read them before the first trade and again when they update. An evaluation and a funded account cannot be traded the same way, and neither can be traded the way a cash account can.

8. Sleep is risk management

A trader with a day job is trading tired by definition. I trade the front half of the night and stop, because the trades I take at 1 am after a full day are worse than the ones I take at 8 pm, and my journal proves it. The schedule lesson is about building the schedule that makes this possible.

Questions people ask

How do you manage risk trading futures overnight?

A daily loss limit set in the platform before the first trade, three losing trades and the session is over, stops behind the next structural level rather than a tick count, small fixed size, scaling out at the first logical target, and pulling resting orders ahead of scheduled news.

Why not use a fixed tick stop at night?

On a thin overnight book a fixed-tick stop sits where the next spike wick is likely to go. A stop behind the next structural barrier is placed where the trade idea is actually wrong. If that stop is too wide for the size, the size comes down or the trade is skipped.

Do prop firm rules change how you trade at night?

Yes. Trailing drawdowns, consistency rules, news and 5 pm halt rules, and payout requirements all vary by firm and are part of the risk plan. An evaluation, a funded account and a cash account each have to be traded differently.

Next lesson: Trading Around a Job: The Night Shift Schedule.

Photo: Zion C on Unsplash.