Do not Violate Trading Rules This One: No More Risk 2 Percent
Financial Management becomes one of the important to be understood in forex trading. Yes, in addition to a strategy or a qualified trading system, failed to undergo money management then you will encounter failure account. The most popular trading rule is do not risk more than 2% per trading you do. Unfortunately it is this trading rule is most often violated.
Many books about trading are full of stories about losses suffered from one, two, three or even five years of profit already earned for just one wrong trade. This is the main reason why the 2% stop-loss rule should not be violated.
Most traders start their trading career, either consciously or unconsciously, by visualizing “Best Trader” – a trader who will make them a millionaire and allow them to retire young and live financially free for the rest of their lives.
In forex, this fantasy is further reinforced by the stories of the market. Who can forget the moment when George Soros hit the British central bank by dropping the pound sterling. But the fact is that instead of winning the “Best Traders”, most traders are the victims and out of the forex business forever.
Just imagine that you start trading with $ 1,000 and lose 50% of that capital, or that is $ 500. Then now just 100% profit, or the profit equivalent of $ 500, this will only bring you back to break even point (BEP or back capital). The loss of 75% of your capital demands a 400% return – an almost impossible number – just to bring your balance back to start-up capital. Entering this kind of difficulty as a trader means, most likely, you have reached the point of no return and are at risk of destroying your own account.
The best way to avoid such actions is to never suffer major losses. That’s why the 2% risk rule is very important in trading. Losing only 2% per trading means that you must maintain 10 consecutive trading losses to lose 20% of your account. Even if you suffer 20 losses in a row, your total capital intact is 60%. Certainly not a pleasant situation for you, it means that you need to get 80% to break even – a difficult goal, but much better than the 400% target for traders who lose 75% of their capital.