My money managements principles
Not in any particular order
Daily capital risk = 2% - never to be confused with 2 percent risk per transaction. A huge mistake.
Will divide trades in two 1%(risk) trades. This way, You#8217;ll have two opportunities for trading.
Optimum risk/reward #8211; 2:1.
If you make 2:1 #8211; please stop trading.
If you lose 2% - only discontinue trading, there#8217;s nothing more for you.
Here#8217;s most probable outcome(s) should you follow these rules.
A: You put a trade, searching for 2:1 using a 1% risk. 2:I'm achievable, market moves onto your side. Your target will be hit, You close the charts and go do anything.
B: You put a commerce searching to get a 2:1 using a 1% risk. 2:1 is achievable, market moves against you(stopped outside ).
You look for the next opportunity (nevertheless have 1% more to perform )
C: You put a commerce searching to get a 2:1 using a 1% risk. 2:1 is achievable, market moves against you. AGAIN!! You close the charts and go do whatever#8230;2 percent daily risk limit has been reached.
OR
A: You put a commerce looking to get a 2:1 using a 1% risk. 2:1 is achievable, market moves against you.
You look for the next opportunity (nevertheless have 1% more to perform )
B: You put a trade, searching for 2:1 using a 1% risk. 2:I'm achievable, market moves onto your side. Your target will be hit, You close the charts and go do whatever
Why don#8217;t go for a third round???
Inside my screw-ups, I did this third round many times. I don#8217;t understand, maybe is attached to the regulation of probabilities or some thing. But trust me on this one. If you did the math, then you've got 1% in your pocket. Do yourself a favor and don#8217;t even go for longer.
If you lose one trip (1%) and it#8217;s like 2-5 PM and nothing else occurs, don#8217;t even feel guilty. Just feel that you place at risk 1% of your capital (which can be 1/2 of your allowed daily risk) in order to receive double. Please wrap it up. The market will be there tomorrow, trust me. If it#8217;s Friday, unless a holiday on Monday, the market will be there next week.
OR
Any of those outcomes laid out before with the addition of moving stops/targets.
In this one, be prepared to be screwed over the long run.
1:1 Risk/Reward
Simply as: If you buy a 1:1#8230;proceed for the next round. If nothing happens afterwards,
close the charts. Be happy.
Same daily two% guidelines apply.
Okay, here8217;s the question many are searching for:
How do I know if 2:1 is achievable??
Keep reading.
Common Sense
It#8217;s important to know the daily range average of the pair you#8217;re prepared to exchange.
On EUR/USD for example, a ballpark figure could be anywhere for 60-100 pips.
When you've got a stop-loss around 80-100 pips space, you understand already that#8217;s not a standard situation on this pair. Imagine 80 pips on a 2:1 - I#8217;ll be 160 pips.
If your stop is something easy like 20 pips, well you understand 2:1 is quite possible.
I truly don#8217;t even have a hard and fast rule on this one. Making one is a waste of precious time. You need to consider how far this specific pair could stretch out on the time period you8217;re trading. Like in case you#8217;re investing London/NY session, then you are aware that the pair will normally run the average mile. If you#8217;re on Asia session trading some USD pairs, the range will be less.
Load modification
The load (# of lots) must be adjusted so that you risk the identical amount of% capital no matter how far-distant your stop is. You#8217;ll have more flexibility with mini-lots.
If you#8217;re planning to go off-balance, be warned that you8217;ll earn less money than 1:1 or better transaction. My proposal would be to take these trades off the 2% rule and lower your load to the point you won#8217;t even feel sorry if you lose.
In this specific case above(off balance), rather than measuring the transaction by% capital risk, use dollar amounts. Personally, I go like #8220;nicely I'm gonna risk 50 bucks on this one#8221; If you lose, take it off the 2% daily risk. Either if you win or lose, nevertheless you are able to shoot for longer, in case it#8217;s possible. My mentor called that trades #8220;Pizza Party#8221; trades.
These rules is exactly what keeps my head above the water. They8217;re me very similar to a code and I won#8217;t even change it . I prefer not to trade should I feel temped to tweak this rules for any reason.
I've reviewed this document and I hope haven#8217;t overlook anything, like I play these rules by memory after several decades. When I did, I#8217;ll make an #8220;Change #8221; LOL.
I'm profitable because I combine both my system(s) along with also my Money Management Rules. If you get started adding/taking stuff off the rules, I promise you with all my heart, you#8217;ll get screwed in the long run.
I sincerely hope you all can benefit from it.
Good Karma.