What is Circuit breaker?
A circuit breaker halts a strategy automatically when a limit you set is hit, such as consecutive losses, then waits through a cool-down before resuming.
What does Circuit breaker mean in practice?
A discretionary trader on a bad day eventually walks away. An algorithm does not, so the walking away has to be built in. Typical triggers are a number of losses in a row, a total loss for the day, or stale market data.
The cool-down matters as much as the stop. Without it, a halted strategy re-enters on the very next signal, which is the conditions that just failed. A breaker does not make a strategy profitable. It bounds one specific way of failing, which is continuing.
A worked example
Illustrative only: a breaker stops trading after 3 consecutive losses and waits 30 minutes. The 4th signal in that window is skipped rather than taken.
How to read or test it
Set the trigger from the strategy's own history. Look at its longest losing streak in the backtest and choose a breaker that sits beyond normal variance but well inside a disaster. Decide the cool-down on purpose, not by default, and decide in advance what ends the pause. Then test it: run the breaker in paper trading and confirm it halts and resumes the way you intended before trusting it with real money.
How AKQX handles Circuit breaker
AKQX offers circuit breakers that stop after N losses with a configurable cool-down, plus a daily loss cap, and deployed algos report their state so a strategy sitting in a cool-down is visible.
See Risk management tools for the feature page.
A common mistake
Setting a breaker so loose it never triggers, or so tight it halts on ordinary variance.
Educational only. This entry explains a term. It is not investment advice and does not recommend any trade, setting or strategy, and example numbers are illustrative, not results.
Related terms
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