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When to break the 2% rule?

  • #41
  • Apr 16, 2012 5:35pm Apr 16, 2012 5:35pm
I personally trade more than 2%, but I have been at it a while and I trade better than many other traders, with a strategy that often suffers no losing trades in a week. I do however, not use stops. I hedge the position I am in and control risk in a calculated way, adding to existing trades and removing excess. Sometime I can approach a 10% drawdown, but then i start to build a position maybe in the opposite direction, exiting my original direction on retraces, and adding more in the new direction.

Eventually I cover my loss position with the added trades and close for no loss. Risk is not black and white its a thing to be managed like a trade, the important thing is to have a strategy to get out of a loss position, then you can handle a bigger risk.

The thing is to limit your capital at risk, clever traders will buy and sell the same market, milking it both ways, so you net position might be zero, but once you exit one trade you have to ensure your exposure is not excessive.


All the best

Mike Haran
  • #42
  • Edited 6:22pm Apr 16, 2012 5:38pm | Edited 6:22pm
RR=1/1.......................... RR=2/1

1000+2%=1020 ............... 1000+4%=1040
1020+2%=1040,4 ............. 1040+4%=1081,6
1040,4-2%=1019,59 ..........1081,6-2%=1059,96
1019,59-2%=999,19 .......... 1059,69-2%=1038,76
999,19-2%=979,2 .............. 1038,76-2%=1017,98
979,2-2%=959,61 ..............1017,98-2%=997,62
959,2+2%=978,38 ..............997,62+4%=1037,52



1000+5%=1050 .................1000+10%=1100
1050+5%=1102,5 ...............1100+10%=1210
1102-5%=1047,37 ............. 1210-5%=1149,5
1047,37-5%=995 ...............1149,5-5%=1092,02
995-5%=945,25 ................1092,02-5%=1037,41
945,25-5%=897,98 .............1037,41-5%=985,53
897,98+5%=942,87 ..............985,53+10%=1084,08


Where statistically increasing RR gives a smaller WinRatio what is not taken in this calculations...
  • #43
  • Apr 16, 2012 6:38pm Apr 16, 2012 6:38pm
Quoting Gollum99988
RR=1/1.......................... RR=2/1

1000+2%=1020 ............... 1000+4%=1040
1020+2%=1040,4 ............. 1040+4%=1081,6
1040,4-2%=1019,59 ..........1081,6-2%=1059,96
1019,59-2%=999,19 .......... 1059,69-2%=1038,76
999,19-2%=979,2 .............. 1038,76-2%=1017,98
979,2-2%=959,61...
On the Android app (http://play.google.com/store/apps/de...tradeoptimizer) I wanted to make a calculation for optimization, but:
-you can have an optimized leverage for an EXACT KNOW win/lose serie. If one trade is added, than need to recalculate.
-as I saw in my examples the highest the leverage the highest will be the capital increase / time , depends on the serie, but this leverage is very high(20:1 -200:1).
-you will be limited by the max consecutive loses and biggest drawdown limit set by yourself. A lot lower, than the above case: (2:1 - 20:1)
- that's why didn't made the "trade serie optimizer".
-if 1:1 than not needed the CDF, just go exchange currency.

I didn't took the hedge "feature" because I was at Oanda and there isn't allowed ( only if you switch a subaccount and there make an opposite trade), but now I can do at Dukas, but I need to exercise what Mike Haran said ( I have tryed in this days, but failed because I couldn't monitor my trades).

Taking my fresh experience - recently I had a super-uber high leveraged position - and when I cam back online I saw a huge drawdown in my Equity: 10-20% whatever. At that moment if I would hedge my position with 50% I could resist to more price movement against me and I just needed to wait to price start come back.
Hard to known when is really started to came back and not just a minor retracement at lower timeframe, but let say I can catch it ( sometimes I did) the price should go back to my original trade's BE and I am on winning position because of my minor hedge closed position.

But what if the price still want to go against me?
- theoretically, I should add to my hedge position and if I see it is going on that way, than ad to my hedge direction - until I can have the original position loses covered with hedge movement x leverage.
The problem with this it is: need to watch the market constantly and pay extra attention if the hedged direction it is not turning in original position -and start generating bigger loses(I had this situation too).

I can't trade for living, because it isn't enough capital, I can't monitor always my trades (but sometimes I can). So I should take less risk and use larger SL / hedge, which needs more capital, than I have

And here it comes the truth about the forex trading: need capital and dedicated trader - economy from 1-2 month of salary it doen't count as capital, it is just a better Demo account: it has the real lossing psychology / feeling + real market conditions and not the "ideal market conditions" as in Demo.

How about 1 full year salary (not just economy from they) ? - with rounded numbers let it be 12,000.
If a trader makes 20% / month it is 2,4000. Leave 50% for capital increase and 50% take out of living, than it is 1200, than pay 30% taxes it will be 840 It seems 1 year salary it isn't really enough for trade for living somewhat safely, long term. Maybe 24 month needed?.
I want to buy PATIENCE
  • #44
  • Apr 17, 2012 12:05am Apr 17, 2012 12:05am
Quoting matheszabi
Taking my fresh experience - recently I had a super-uber high leveraged position - and when I cam back online I saw a huge drawdown in my Equity: 10-20% whatever. At that moment if I would hedge my position with 50% I could resist to more price movement against me and I just needed to wait to price start come back.
Hard to known when is really started to came back and not just a minor retracement at lower timeframe, but let say I can catch it ( sometimes I did) the price should go back to my original trade's BE and I am on winning position because...
crappy approach, if you ask me. Sooner or later you will blow your account with that.
Quoting matheszabi
I can't trade for living, because it isn't enough capital, I can't monitor always my trades (but sometimes I can). So I should take less risk and use larger SL / hedge, which needs more capital, than I have
how low is your capital? You can trade nano lots. Never understood that argument that people need more capital to use larger sl's (in fx).
Quoting matheszabi
And here it comes the truth about the forex trading: need capital and dedicated trader - economy from 1-2 month of salary it doen't count as capital, it is just a better Demo account: it has the real lossing psychology / feeling + real market conditions and not the "ideal market conditions" as in Demo.

How about 1 full year salary (not just economy from they) ? - with rounded numbers let it be 12,000.
If a trader makes 20% / month it is 2,4000. Leave 50% for capital increase and 50% take out of living, than it is 1200, than pay 30% taxes...
Not at all, you just compound your money over a couple of years and even a 100$ would get up to any amount you like. Of course first you need a good method => that is what you are lacking. Starting capital is irrelevant.
  • #45
  • Apr 17, 2012 4:15am Apr 17, 2012 4:15am
Quoting Custos
Not at all, you just compound your money over a couple of years and even a 100$ would get up to any amount you like. Of course first you need a good method => that is what you are lacking. Starting capital is irrelevant.
Well, this "undercapitalization" argument comes from people who think that it is totally irrational to expect anything more than eg 20% per year. So they say that you can perhaps live with a starting capital of $100,000, by making $20,000 per year. But if you start with $500, and assuming 20% per year, then you will need 30 years to grow your account to $100,000.

Of course, if you can make 20% per month, then you can turn $500 into $100,000 in just 2.5 years (and $40,000,000 in 2.5 more years).
  • #46
  • Apr 23, 2012 2:41pm Apr 23, 2012 2:41pm
I wish I have 20% / month, but it seems if I do in a few days, than will be a drawdown. I would say 5 maybe 10% / month is safe with borrowed money, at least as I am thinking now.

I have set in my profile the location. Now it is in Romania, but this doesn't matter. Let's do some math with rounded numbers:
- let be my account 1000 usd (many trades has this), this can be an economy from 1 month or from 1 year in and happier cases maybe 1 week in Romania as employed, but you can use 10,000 for Germany or USA for your reference.

Now, with 1000 usd account and if you make 100% / year it will take 5 years to 32k, to have 2-3k / month and start trade for living. Not bad, but until that you have to do the "rat race" at your employer, where you can't or don't want to trade all day.
- with 20% / year it takes 19 years to grow until 32k, better do the rat race imho.

not only for Custos:
-if the minimal transaction is 1000 units at your broker ( micro lots at many brokers) , that means +/- 10 usd at 100 Pip move eg SL. it is: -1%, which is ok. But, if you don't have 1000 usd in balance only the minimal required by broker 25 or 100 usd, or you want bigger SL than that means you are undercapitalized to use SL because it is 40% or 10%, but not 1% for sure.

It seems by broker require 100k in account to be able to make a custom software for myself: http://www.dukascopy.com/swiss/engli...ix_api_account

So my milestones it would be 30k -for trade for living - and 100k - to use a somewhat useful, software without any fancy indicators -for your reference: in my city with 30k you can buy a cheap-medium apartment.
I want to buy PATIENCE
  • #47
  • Apr 23, 2012 11:54pm Apr 23, 2012 11:54pm
Quoting matheszabi
not only for Custos:
-if the minimal transaction is 1000 units at your broker ( micro lots at many brokers) , that means +/- 10 usd at 100 Pip move eg SL. it is: -1%, which is ok. But, if you don't have 1000 usd in balance only the minimal required by broker 25 or 100 usd, or you want bigger SL than that means you are undercapitalized to use SL because it is 40% or 10%, but not 1% for sure.
no only for matheszabi:
- I think oanda allows to trade nano-lots. So for the people with only little money, they can still trade perfectly fine with less than 1.000 $ without being undercapitalized.
  • #48
  • Oct 7, 2012 5:09pm Oct 7, 2012 5:09pm
I have re-read a few posts in this thread. I had under 1000$ at Ducas EU, min transaction units is 1000. Forgot how much I had, maybe 150$ or 250$.

I have changed my trading style a bit, and I have used Demo account. It seems the good method I missed.

I am still not sure about 2%, sometimes is to high the 1%, sometimes it is acceptable even the 5%. Not all trades are looking exactly the same safe. For an unsafe trades: aka lets try it if it will survive to daily volatility it is to high the 2%. 8x loses in a row will blow the account and is possible the 8.
There are powerful movements, I think at news releases ( not the spike), where I think it is safe the trade. There is no reason to go below 1%, even 5% is acceptable for 10-20 pips. Maybe after 1 more year I will have different vision
I want to buy PATIENCE
  • #49
  • Oct 7, 2012 10:08pm Oct 7, 2012 10:08pm
Quoting matheszabi

I am still not sure about 2%, sometimes is to high the 1%, sometimes it is acceptable even the 5%. Not all trades are looking exactly the same safe. For an unsafe trades: aka lets try it if it will survive to daily volatility it is to high the 2%. 8x loses in a row will blow the account and is possible the 8.
There are powerful movements, I think at news releases ( not the spike), where I think it is safe the trade. There is no reason to go below 1%, even 5% is acceptable for 10-20 pips. Maybe after 1 more year I will have different vision
Or you could choose NOT to wonder. Simply decide what risk suits your personality and do that each and every time.

If you decide something differently then do THAT each and every time for a while until you're satisfied with your results.

If you're not consistent you may always be subsistent ???
When the Joker is in the deck.. fear not and play it well
  • #50
  • Oct 8, 2012 3:00am Oct 8, 2012 3:00am
There are some good replies here with regards to risk, and as many of them stated, each trader is going to have a different style of trading, including money management.

You hear of traders stating that you should have a risk/reward of 1:2 etc, or no more than 1-2% risk on each trade, which are all fine if they work for that particular trader. A scalper may even look at using margin to the absolute max allowable and keep their stops extremely tight, where this would not be a viable option for a position trader as they could have a trade that moves 200+ pips against them before the trade goes into profit.

So in a nutshell, you have to have a trading method that is profitable in the long run, whether it has a 30% or 80% strike rate, it has to be a method that you are comfortable with and are willing to ride out the bad times as well as the good times. You then base all your money management around this and adjust your risk accordingly, and this has a lot to do with what your broker requires in margin etc. So one size does not fit all, as there are way too many variables involved. 2% risk is not a bad rule to follow if you need a hard number, but I certainly wouldn't be to anal about it, and just find a risk parameter that fits your particular trading style. Cheers.
JAGfx
  • #51
  • Oct 8, 2012 9:01am Oct 8, 2012 9:01am
When to break the 2% rule.
sketched out as follows:
1) Trade small
2) No SL
3) treat the losers the same as the winners:
==> minimize losers (possibly losers in winners)
while at the same time:
==> maximize winners
The 2% rule is provided as free advice to those soon to be parted with their money (the masses mostly)
  • #52
  • Oct 8, 2012 10:30am Oct 8, 2012 10:30am
There is no set in stone rule!! It all depends on your bankroll and win rate...which allows you to calculate the risk of ruin. 2% is a pretty good figure for most strategies. Personally I use a strategy with quite a strong win %, so I have no problem going up to 3-3.5% for most trades. Take in mind, that's after a couple hundred trades on the H1 charts, so I'm fairly confident and losses don't disturb my "mental health"
  • #53
  • Nov 4, 2012 12:18pm Nov 4, 2012 12:18pm
I did it
Here I have proved when to use the 2% risk if the SL and TP are in the same distance and always are you risking the same % of you balance.
I want to buy PATIENCE
  • #54
  • Last Post: Nov 7, 2012 2:10am Nov 7, 2012 2:10am
I think 2% is good for new traders.

Good traders have their trading strategy and the risk per trade could be higher a lot. Even some trader can put an order for a long time and they might not set SL.
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