When to break the 2% rule?

For this post I have started to read that book.

It sounds good to risk a bit higher for a very short period of time so I wanted to do it, in live account. I am not sure where was my mind to learn a new setup trading technique, but I was so exited as I did on Live account... Probably I was to lazy ro switch to demo account, however: I have lost 2-3 time like 10-15 pip, than I won 2-3. It wasn't 4x consecutive lose to signal myself to stop it. I have lost 13% of my account and not only for this new great thing, but I have traded from mobile, where I have very small chart and can't read the calendar / news and so on. I think I lost like 5 consecutive times, if I don't put my very small wins there, only in 48h: I did panic + lost control. I have mixed with a few "normal trades too" with 7-9% leverage and SL like 2-5% and I won a few, but Win-lose ratio was around 1:3 (in my normal trading style is around 3:1, 4:1 or even better)

I felt bad and I wanted to recover my money, but at EUR/USD Bernanke blowed up all my trading plans, that's why for very long period of time I have take a look for other currency pairs. I saw AUD/USD has some micro trend at 1 min chart: won a few pips (over-leveraged) than at USD/CAD I saw something : I got something there too (over-leveraged too) , I lost a trade somewhere, maybe at EUR/USD and got another 3 over-leveraged trade. Margin call was my SL... I am at +7% right now, from original balance...Now I can take a look what I did.

- what I learnt from here is: never start a trade with analis made inside native mobile app. Use Teamviewer and connect to desktop and see those chars bigger in worse case.

In lower timeframes, outside of the big news and London and NY session is safer - for me- to trade the "noises" especially around ...00 values, there can be used more than 2%, if I babysit my trades. Maybe there can be used that setup with 5% with close SL.

Hm, this day I did like 5-6 trade / day, not because I saw opportunity, but I wanted to recover my money. Isn't wise I know.

I made this rule (1 trade / day) for myself to keep me away for overtrading and do more analys before I do a trade. Anyhow, 3-5% capital gain / week it is enough for me, when I have enough money.

Agree with you: if I see more trading opportunities I should trade more.

Right now I don't know when I am already tired and when I start seeing trade opportunities and those are nothing with reality, just in my imagination are good setups. Any "indicator" for that? - to signal for me I am to tired or I am sick or I am in to bad mode and I shouldn't trade at all.

I think the only time you should "break" this is when you're adding to a position in a long term trade, or you have another 2% trade covered at break even or better with a stop. After you cover a trade at break even, you have essentially nullified any risk associated with it, and you can stack another 2% without increasing your exposure over the original 2%.

Well that's not good.

I wanted to make a trade plan for me, and sick with that, but even at 1 trade / day rule it fails and isn't smart

Right now I am on Live account, with a small capital and I have changed my trading behavior a bit : to indisciplined.

My "trade plan" push me to trade and try to make + 1% / day, at least +3% / week, otherwise I wouldn't trade and risk money at all, but I want to double in a few months(4-8). Probably this is not the best part of the plan.

With +1% / day it is 100% on the 71-72 th day ( less than 3 month) . That has reason to play this game, for yearly +20% not.

This is not the best rule, because it push me to trade, when I don't want or I afraid to lose. I have learnt when I am sick or in bad mode than it is an accepted excuse to not trade at all.

I have tried to do trades with 20 pip SL and 40 pip TP on EUR/USD and stick with, but simply can't I see opportunities on a lower timeframe and outside of the NY, London session, when I can trade with 5-7 SL and 10-15 TP relative safe, sometimes I see no setup and I just stay away even "it is moving". I am not sure, if I should enter in those trades, because "my trading plan" it says in a rule, and maybe after 10 loses I will change that rule...

As I saw if I have 3:1 or 4:1 win : lose ratio, than the higher is the leverage : higher is the profit(I do use 8-10% leverage only, usually). But I should plan for those situations when I got consecutive loses. That can't plan when I got and how much are consecutive. If I stay with rigid 0.5-1% risk, than I should have like 3-10 trade / day to make 1-3% / day. I don't have enough capital to be full day trader yet and can't trade all day in this days. So in morning, lunchtime, evening, sometimes from mobile in working hours(very short time-enough to close a trade) I can take a look to chart, news, but as I saw for analys I need a lot bigger screen than a phone screen.

Yesterday the EUR/USD falled from 1.3380 to 1.3277, it is around 120 pip. I saw at some point "here is falling and will hit 00" so I have used some tight SL (like 10 pip ) and bigger leverage, over 2% risk, for sure. I won that trade too and another one with "normal" risk(around 20 PIP). Only 13.8 + 19.6 PIP I could catch from that movement, but I don't want to catch the whole wave, just make my +1%, if +3% than better.

When I see the price isn't going enough fast in my direction or it seems to take a break and do a retracemement I just close the trade and do prefer to won 2-5- even 10 pip instead of a lose, when I am a bit overleveraged. Not sure how to describe this as rule, past of the trading plan, since I don't really use indicators."enough fast" -should be some momentum indicator, but takes place from chat and distract attention from candles.

When I use a correct size and SL I can be "offline mode" here usually I do use some support level for SL or if isn't than just my 0.5-3% with a TP set.

Everywhere it says I should have a written trade plan and stick with it, but that makes me more stress than trading without plan.

Probably cause your trade plan is based on nothing else than cloud-castles. Or do you know what the expectancy of your system is for a thousand trades (not theoretically but empirically)?

My risk parameters with respect to strategies is as such:

I start the day by looking to enter maybe 2 or three positions to build as a part of my total daily risk allotment. During one trading day(17:30-16:00EST) I allow maximum risk in my account equity to be capped at 1%. The trades that my system takes are all greater than 1:2 risk/reward while sometimes the market can present arbitrage opportunities where it can look to generate 1:5 or even 1:10 r/r returns.

If the early trades that the system entered become profitable, where risk can be eliminated, as defined where a 1:1 return is currently generated by the trades, I will write that risk off the book and look to enter more trades, scaling up in my lot size by 100% per trade(for example if I had two trades open, each 100k lot became profitable, the proceeding trades would be each 200K size) while still maintaining the 1% cap. I do this in order to reduce diversity in the portfolio, due to personal experience in finding that too much diversity(i.e. trading too many pairs) will eventually make you flat. In essence, it would be forced to look for the remaining trades in higher probability setups(which could coincidentally generate an arbitraged alpha).

I risk 1 % per day, looking to do 3-5% per week(estimated alpha model). In my opinion, risking 2% is just far too much. Your risk of ruin, for all intensive purposes, doubles and no one likes large drawdowns(at least investors). Yet, this discussion could go on for hours. Personal taste is also a huge factor for this problem of maximum risk. Some traders have the blood for high stress situations, some don't. I feel that I trade much more rationally and precise when I know I'll survive to fight another day, and that is what this game is all about:longevity. Hope this post helped someone.

Lol, I like this guys honesty. I think in general, the kind of people that are attracted to trading are 1. People that don't want to work a 9-5 job. 2. They like the idea of easy money. 3. Will take shortcuts whenever possible.

While a lazy nature may have attracted you to trading, you will quickly find that trading forces you to become un-lazy. Besides, if you are truly interested in something and feel challenged by it, doing the necessary work shouldn't even feel like 'work', it should be enjoyable.

There is nothing wrong with wanting a high reward for mastering such a difficult skill(maybe one of the most difficult there is), but seriously, you can't be lazy about it

TI saw a post yesterday, somebody traded 1 lot with 100 pip Sl, that is 1000 usd. In this case should have 100,000 in portfolio. I don't have. But 100 pip SL is a decent value , I would take at least 200 for TP. And here it comes the problem with risk and trading plans: I doesn't have enough Trade opportunity to make a trading plan and know what to expect from 1000 trades, because that needs a 10,000 sample and there has major influence the fundamentals, which can't be simulated with trade advisors.

Starting a live account with economy of a few month salary it isn't enough to be full trader, realize dreams , but taking a bank loan it sounds a bit risky for me, although taking only 1% risk as mfoste1 it could be enough, if the capital is at least salary of 5 - 10 year: a better house

I think I get what you're saying, there's a good thread at Babypips.com in the newbie section titled 'What Every New & or Aspiring Forex Trader Still Wants to Know', in the first post is a humbling and calming statement that makes a mountain into a molehill.

It's that over a decade you can make a million bucks from a 1k with steady growth at 'only' 20pips a week, constantly compounding. Oh, and if you can steadily pull more than 20pips a week, or more than 4pips a day, then that million buck cloud will come sooner.

From what I can gather, many traders can have surely profitable methods, but then system hop or fuddle the rules and lose the consistency and confidence. Consistent growth and patience is where it's at.

Because I am lazy to calculate over and over with the same algorithm, but different data, that is why I made a calculator, available at Android market.

Because I am lazy to substract 2 numbers and maybe add another or multiply with another one, I have modified my trading platform.

As I told I wil always think to "how to do less for the same result, which doesn't equal with "how to do less".

Imho : all inverntors was just lazy like me and they are thinking like me
I bet once a lazy man was put to clean clothes and that why was invented the washing machine, why else?

At my 4 years I knew what I want to be: retired. Not a single reason in the Word to work from 9 to 5, especially something with average income and need to weak up before 10:00 London open it is at 10:00 in my timezone now.

If I weak up for Frankfurt, London open and catch a 20 pip movement, which gives me a whole month salary, than is worth, maybe... but I will find another way to catch the same 20 Pip and not need to weak up early: like NY open for eg or London close.

For very novice players this can be "very easy" gambling with Up-Down, but they will wipe they account soon with leverage used which the broker has the maximum allowed: like 200:1 or 500:1. For me it is not so easy, because only charting doesn't work, because of news, only news doesn't work and only market sentiment doesn't work again, it is hard to combine the 3 system ad make a written trading system with rules and follow that

Bad idea, let your profits run until the trend is over.

Aswering to the OP question: if you risk more, you have less chances to recover yourself from a loss, for instance, if you lose a 50% you need to win the double, a 100%, to recover yourself.

So... When to break the 2% rule? NEVER. Even if your winning ratio is 7:3, you may have a bad patch and blow up your account.

The "2% rule" all depends upon who's rules you're reading. If you establish the rules for your particular trading style, whether it be 1%, 2% 5%... whatever, then that's the rule you should stand by. If at some point you feel an adjustment is needed then make it.

That's one of the great things about trading. It allows you to make and test your own rules and you live with your own decision.

Here is my cloud-castles "trade plan"

http://img37.imageshack.us/img37/273...20404at100.png

Uploaded with ImageShack.us

- from where to get at least 10,000 NFP news release history to build up a trading plan for 1,000 trade?

- on the image I made comments, but it seems it isn't visible.
At Yellow arrow it was the NFP news release. I have stayed and wondered why no news spike - at Oanda it was usually, now I am at ECN broker and that is why wasn't ? -don't care. FOCM and Bernake told me to seek for shorts + this news is stronger the shorts, that's why I have entered in short direction at Red Arrow.

No SL, because I took 2x bigger position as I could with 15 pip SL. and 7.5 pip SL is sinucide here usually, nothing else. Even the oposite direction of the spike has like 40 pip usually. The news was in my direction, so, if there is a spike ( later)of 100 pip it will be backtested to 20 pip SL , for sure and - and only than I will close. But all news told me: this way.

No SL it is 100% risk, I know.

Than I saw the price is going up, instead of down, that was a sign for me: this is not an "usual NFP trade" -but is ok to make retracement, however it took to long. When I saw the second push to down has no power and the price is coming up - gray arrow- I just kept attention on the chart and searched / waited for a close opportunity: a push down and a small up.

I can't make rules for "not usual trade"
- "not enough push down in time" will indicate some value of a momentum indicator, but no 10,000 data to test it for 1,000
- probably there are some expert advisors, wich will wait the "next push down and after that the up small movement too" but in my iPhone platform there aren't and I don't want to make a strickt rule.

If I would have a holy grail written system and I should keep all rules like german people I wouldn't follow, because:
- it takes my liberty, flexibility of making decision
- doesn't follow the market / trade style changes and in a few years it become deprecated
- it has yearly 40-60% return only.

I don't care if I have a 20-30% drawdown in 2-3 month instead of 5%, if I have 100% return in 3-4 month.

Actually I had 18.7% right at starting, and 10% it was exclusive my fault.
Right now I have recovered and I have + 17.4%
This is in 9 trading days, 35 trades.

Can somebody tell me what to expect with this "system"?

I was stopped out at 40% - I took a way overleveraged trade and I wasn't online Friday to baby sit it.

The price has moved against me more than 100 pip, like 140? -not sure.
I was sure it will came back. After a SL set for my account it was closed the trade. The price went like 20 more pip against me ( it wouldn't wipe my account those +20 pip at all) As I see the price is came back (I had right), but I lost my 1-2 month of trading "work" Well, well "I am the leverage, now die!" http://www.babypips.com/school/leverage-the-killer.html

I dont believe in that rule. Its just a suggestion. It depends on your system. If your systems wins 30% of the time, then maybe even 2% is too much! But upto 3% is good in my opinion.

The video fails to discuss the "fine points". Taken in and of itself, it would seem to suggest that if I risk one half percent I could make more or risk one tenth percent and make even more.

To each his own, I guess. If you get wiped out trading at three/fourths percent risk I guess you know you did something wrong.

I think the scenario in the video would only be true if you lose vast majority of the time and have a few large winners.

What the video fails to discuss is win/loss ratio. risk/reward ration, so on and so forth.

If I were someone who had been trading for 6 years or 15 years (whatever) and had a history of +70% wins with a R:R of +1.5 or better, would I trade with more than 3% risk? Of course.

The video was simply posted by someone trying to make a name for himself. That's it (imho).