When to break the 2% rule?

Hi,

In many forums, webpages there is the "golden rule"? about the 2%: do not risk more than 2% in a trade.

With demo account is easy: no problem if you wipe the account, because it is a reset, but how about live accounts?

I know the scalpers, or those who has more than 1 trade / day ( some has even 100) easy to keep it. What about in higher time frame?

In my case I am playing now with a demo account, but with the same money as I would invest ( if I would have enough experience and knowledge), so I am keeping much as possible real, and not scalping, especially at news releases. I had / have live account too.

I have decided to take only 1 trade / day. In this case I am forcing myself to be more patient and watch the chart more and enter in trade, when I believe "I know what is happening" and " I bet it will go in that way" and not let see if is going on that way ,if yes, than I will stay and if not exit

Unfortunately with demo account I don't have access to detailed access chart and I am lazy to write software or excel to calculate win-lose ration. I believe is above 70% win and 30% lose (around 80-85% if not even 90% win ratio ). Since 1 trade /day but the amount of trades are low now.

I am "playing" only with eur/usd, and 50 pip TP , SL.

Usually I get/lose 1.5% of capital /trade. Sometimes I put the second trade, when I am near PC for 20 pip and that is under 1% and once / week max.

I did a scroll up on trade logs and I saw a few over leveraged trades: got like 15% even 20% for this account a couple months ago / trade!

I am thinking Gerge Soros or Jesse Livermore do they kept the 2% rule?

Livermore wrote about he wiped his account, and retook trading. Also it is OK to do mistake but should let for you a second chance.

What about to risk 6% or even 10% of capital if the win-lose rate is 5:1 ? and only 1 trade / day?

EDIT:
I got the response for meHere.

In short: if you risk exactly the same as you take profit ( 50 pip SL with spread and 50 pip TP) and you have a probability of 51:49 the win and lose trade ration, than that is the optimal.
For 70:30 ratio it is unbelievable...40%!
I made some other calculation too.

The payoff based on risk shows a kind of parabolic? curve like presented here.

Until an optimum easily increasing, than decreasing a bit faster. At a certain point falls, crashing with very high speed.
The optimum depends on the percentage of the win lose trades ratio ( if the same amount gained as risked)

The 2% rule is ok unless you impose it on the market. What you need to do is to calculate your position size (= risk on the trade) with respect to the likely loss on the trade. This means if capital = 10000, acceptable loss = 2%, then amount risked = 200, and if likely loss on trade is 30 pips, then the number of units of eur/usd you are allowed to trade is 200/30 =66667 units. So here you tuned your risk profile to the market reality (i.e. likely loss of 30 pips) rather than the other way around.

If you are having trouble sticking to one trade a day, it means your trading profile is different - you need to adapt your trading to YOURSELF - in your case you want more action then go for scalping or day-trading, adjusting your trading plans and systems accordingly.

@matheszabi

you should first learn where the 2% comes from. it's a matter of drawdawn and trading system parameters. i've written a post on this http://www.forexfactory.com/showthread.php?p=5128495.

how do you know somebody is a loser and will stay a loser? when he writes something along these lines

Secondly, the risk parameters you should use should be based on the outliers of your system, which of course you will be as well too lazy to analyze.

Also consider your total in market risk. If you have five trades open at same time at 2% risk, than need to consider your total exposure to the market, not just the individual trade.

Never....and you should not be trading, go be lazy somewhere else.

Taken from Market Wizards

Ofcourse it also depends on the maximum consecutive losses your system is statistically prone to and whether or not you will be able to deal with the drawdown.

I know of traders who start out with risking 4-5% of their accounts which they consider small accounts. As it grows, they gradually reduce the risk as the absolute dollar amount of each winning trade is sufficient enough for their lifestyle but also big enough to be troubling.

ed seykota,Richard Dennis etc. are all dinosaurs....seykota is estimated to be worth 100 mio,Richard stills trades an account less than 100 mio which is surprising since he traded 200m in 1990....trend following has become more harder...none of the trend following CTA's made money in 2011.
seems only the traders with a killer instinct push through the billion dollar barrier ...soros,Cohen,PTJ

There always is a mt4 broker which offers what ever currency stock or commodity you want to trade.
If you really want to be lazy go to the konto history tab click right and save your history as a detailed statement.

It will look something like this:

Out of curiosity, why did you decide to make one trade per day? I would think that a person should trade when an opportunity for profit presents itself, and not trade when one doesn't present itself. Picking an arbitrary number of trades per day without regard to opportunities presented by the market makes for a sure way to lose money.

2% risk is 2% risk, regardless of whether you're trading demo or live; regardless of the leverage your br0ker is offering; and regardless of whether you're trading a $1,000 or a $100,000 account.

To state the obvious, the lower your trade risk, the smaller the likelihood of encountering ruin (irretrievable drawdown). Experienced traders understand that even the best strategies can encounter prolonged losing sequences, and hence they prioritize risk management.

If your profit factor (win% x average RR per trade) is high enough, then there is mathematical justification for increasing %risk.

If you have statistical proof that one particular setup has a higher probability of success than another, then you can justify risking more on the higher probability setup. However, keep in mind this also increases the risk of ruin. Risking more merely to recover recent losses has no mathematical basis; it is nothing more than a dangerous gambling game of hit or miss.

I risk no more than 1% per setup. That is easily enough to average 10%-50% ROE per month, if you have a solid strategy and trade frequently enough.

Thanks for answers, especially for the book recommendation. I have started to read.

I am lazy and I am thinking always how can be more lazy and do less to the same or more results. I think in inventors head was something like this, and they tough similar than me. I did once my homework and I don't want to do it , calculate it again. From now there is a software to do it: http://market.android.com/details?id...tradeoptimizer just needed an Android phone.



My behavior, lifestyle and my capital is the main reason why I don't trade the 1 min chart anymore. Sometimes I have time to watch monitor, sometimes not.
Also I don't have enough capital to increase with 5-30% take a part from profit for living ( but that is my dream).

I am leak of experience at news time trading + Oanda's spread is 10 pip for Eur/usd and I lost a few trades trying to trade the spike. So for me it was better / safer to trade between 12-14th of the month to end of the month, because the heavy news are at beginning of the month. I can still catch a few ten pip, but that was...more gambling. In this days I saw an info about a broker, with a bit higher cost, than Oanda, but ECN, so probably will be not 10pip the spread+ commission and is not MM, also I have more experience, I will try at they the news time trading.

- I have connected the MT4 to my demo trading account and : miracle I got the report. It was a surprise for me how few losing trades are versus like 1 or 3 years ago, when I have traded on 1M or 5M. Unfortunately I am unorganized too - not only lazy- and I trade like 3-4 setups. So the 5:1 win-lose rate isn't saying anything for me: for which setup was it? it is an average... Max consecutive lose 1, that is too good Probably need more data or those are fakes If consecutive max consecutive lose it would be 1 for real, I would use 500:1 leverage...or even higher, but last trading try it was much worse , I had like 4 or 6 trade lost from 10 and a bit higher SL than TP.

I don't like to open more trades than one, but here are the situation, where I would open:

let begin the first trade: long and risking 1% or 5% or whatever...if the price is going up and will go down to a Fibonacci level and I see it is going up aggain, than I will move my SL upper. If the SL is above BE, than I would open the next long, because the first one id already in BE.

Friday I wrote a post, I did a Short. I knew this trade is a high risk trade, so keep SL higher. When I saw how far it went I cound't stay away and I did a short from that high price too So in this case was 2 position open.
http://img839.imageshack.us/img839/3780/oanda.th.png



Hedge is not allowed for me at that account and I am lazy to move to another account and switch there and deal with maybe forgot a trade there or here...That's why sometimes I do "correction trades". to have the average of 2 trades in BE in case of I did a mistake.

Like I told above not enough experience for news, I can't trade with tight SL as it in Market Wizards, yet.

u should only break it 2% of the time.

but on a serious note, lot size for me is all about max loss

Very valid point!

Lazy, unorganized, lack of patience, playing with... hmmm... Someone is seriously in serious trouble here.

Let me give you a suggestion. Stop trading and do something you enjoy. It seems like you view everything concerned with trading to be work. And all i here from your post: "I am lazy, lazy, lazy".
You will save yourself a lot of money if you quit right now. With your attitude you will NOT make it in this business, I can promise you that. Real trading begins with extensive research, and that requires you to get your ass up.

cheers

"When to break the 2% rule?"

When you are using a system and there is a setup which has high historical P/L rate and the system has a steady equity curve with no abrupt drawdowns. Depends also on how much you can accept to lose, if something goes wrong, experience,... But perhaps you already knew this.

One percent max..

Well today it was a very goog lesson for me:

I am sick, SO I have less capacity to concentrate less patience and so on.
Once I did in a live account, but I am changing the broker, and I will change the trading platform to. This new platform is strange and I can't see a nice utility like at Oanda: if the SL is x PIP or is Y than I will loose XY from money. I took "as usually" trade size according to my Equity, but the SL wasn't usually
This new platform allows to put the SL on Bid or on Ask too, I have set in preferences some value like 20 or 50, but it didn't look like nice on my chart, and I have changed. The price went against me and didn't understand why, because wasn't news results which should made it. I wanted to correct this movement , as I did: take the same direction with a bit bigger size and at retracement it will be a BE average. Well the price didn't come back as I have expected and I did a risk like 20 or 30% already
-and I did another correcting trade, lool, what a mistake and violating all my money management rules.

From the support team I have asked to remove my balance from 1000 to 300 to simulate the reality of the first month at this broker as much as it possible. They could't remove the 700, but I did in a few hours with my position corrections...around 400 units now. Lost like 60%-last 2 trades was on the scope to lose, but first 3 not.

What I learnt?
- This position corrections can be to dangerous for my balance. Several times it saves me and converts a losing trade to a win, but there are very few cases when the drawdown is just not acceptable.
- never trade when you are sick ! -better stay out 2-4 days.


PST: At beginning I did to many research and overtraded, than I took a break. The cumulated research and knowledge needed to be ripen and needed more experience.
Right now in my chart aren't full off EMA, SMA, BB, and 6 other indicators under char like MACD and I have better trading results by far.
Also I have calculated how much capital to I need if I trade like this to live from that. - so I did research also I wrote softwares.
It seems I don't have enough knowledge and experience to be full time trader, although my last month it was very promising.

Which kind of research have you been doing? And now don't tell me that you think reading forum posts or books about forex classifies as research.