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.
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.