Understanding the strategy.risk.max_intraday_loss() Function in Pine Script

The strategy.risk.max_intraday_loss() function is a critical tool for setting a cap on the losses a strategy can incur within a single trading day. This tutorial explores how to utilize this function effectively in Pine Script.

Syntax and Arguments

The strategy.risk.max_intraday_loss() function is designed to limit intraday losses either in monetary terms or as a percentage of the strategy’s equity. Its syntax is as follows:

strategy.risk.max_intraday_loss(value, type, alert_message) → void

• value (int/float): This mandatory argument specifies the maximum loss limit. It can be defined in the base currency of the account or as a percentage of the strategy’s maximum intraday equity. For percentage-based limits, the value must be within the 0 to 100 range.
• type (string): Also mandatory, this argument determines the nature of the value parameter. It can either be strategy.percent_of_equity for percentage-based limits or strategy.cash for absolute cash limits.
• alert_message (string): An optional parameter that allows for the customization of alert messages when the specified loss limit is breached.

Examples

Example 1: Setting Maximum Intraday Loss as a Percentage of Equity

In this example, the strategy limits its maximum intraday loss to 10% of its equity.

//@version=5
strategy("Intraday Loss Limit Example: Percent of Equity", overlay = false, default_qty_type = strategy.percent_of_equity, default_qty_value = 100)

// Input for maximum intraday loss percentage.
maxLossPercentage = input.float(10, title="Max Loss Percentage")

// Setting the maximum intraday loss.
strategy.risk.max_intraday_loss(maxLossPercentage, strategy.percent_of_equity)

// Entry condition.
if bar_index == 0
    strategy.entry("Short Entry", strategy.short)

// Tracking and plotting equity change percentage.
equityStartOfDay = ta.valuewhen(ta.change(dayofweek) > 0, strategy.equity, 0)
equityChangePercent = 100 * ((strategy.equity - equityStartOfDay) / strategy.equity)
plot(equityChangePercent, title="Equity Change Percentage")
hline(-maxLossPercentage, title="Max Loss Threshold")

Example 2: Setting Maximum Intraday Loss in Absolute Cash Value

Here, the strategy limits the maximum intraday loss to a cash value of 5 units of the base currency.

//@version=5
strategy("Intraday Loss Limit Example: Cash Value", overlay = false)

// Input for maximum intraday loss in cash.
cashLossLimit = input.float(5, title="Cash Loss Limit")

// Setting the maximum intraday loss in cash.
strategy.risk.max_intraday_loss(cashLossLimit, strategy.cash)

// Entry condition.
if bar_index == 0
    strategy.entry("Short Entry", strategy.short)

// Tracking and plotting price change.
priceStartOfDay = ta.valuewhen(ta.change(dayofweek) > 0, open, 0)
priceChange = (close - priceStartOfDay)
plot(priceChange, title="Price Change")
hline(cashLossLimit, title="Cash Loss Limit")

Walkthrough of Code 

1. Initialization of the Strategy:
   • Similar to the first example, but the strategy is named “Intraday Loss Limit Example: Cash Value” and does not specify default quantity types or values since this approach focuses on cash values.
2. Setting Up the Input for Maximum Cash Loss:
   • cashLossLimit = input.float(5, title="Cash Loss Limit"): Creates an input field for specifying the maximum loss in cash value. The default is set to 5 units of the base currency.
3. Applying the Maximum Intraday Loss Limit:
   • Uses strategy.risk.max_intraday_loss(cashLossLimit, strategy.cash) to apply the cash value limit to intraday losses.
4. Entry Condition and Price Change Tracking:
   • Similar to the first example, this code includes an entry condition for a short position at the start of the chart.
   • It calculates the absolute price change from the beginning of the day and plots this alongside the cash loss limit.

Key Features and Takeaways

• The strategy.risk.max_intraday_loss() function is pivotal for intraday trading strategies to manage risk effectively by setting limits on potential losses.
• It supports both percentage-based and absolute cash value limits, offering flexibility in risk management strategies.
• Including an alert_message parameter can enhance monitoring and reaction capabilities during live trading.
• This function ensures that trading strategies adhere to predefined risk thresholds, thereby helping to preserve capital and sustain trading operations over the long term.

By integrating the strategy.risk.max_intraday_loss() function into your Pine Script strategies, you can implement robust risk management rules that safeguard against significant intraday losses.