A couple of days ago we talked about how much money you need in order to start trading. But right now we have come close to the question – how much can we risk when we are making out our own risk management strategy.
And here, lucky for us, is actually an answer! FINALLY! WE HAVE BEEN WAITING FOR THIS MOMENT EVER SINCE THE BEGINNING OF SCHOOL!
Finally, a trading topic actually has guidelines and doesn’t rely on your subjective feelings and thoughts. So. It is said that generally risking more than 2 percent of your account is considered bad taste and too risky.
Of course you can also find an opinion that says that 10 percent is also ok, but let’s see – 2 percent from your account of $20.000 is $400. And 10% is $2000.
Those who know math have already figured in out – 10 percent is 5 times more than 2 percent. That means that of every trade from your $20.000 is a losing one [remember drawdowns and losing streaks?] you are going to lose all your money 5 times faster.
Lest put it like that – with 19 losing trades in a row you are going to lose 85% of your account, putting down 10 percent of account every time.
Under the same circumstance but only with 2% bet you lose only 30 percent.
Quite the numbers and math, right?
Remember that the next time you are going to assess your risks for the trade.