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Economic Factors in Forex Trading Studies have shown that you X Scalper should never risk more than 2% of your float on any trade. Why 2%? Well, in fact, many day trading professionals will tell you that 2% is too much. They'll risk 1% or even as little as a quarter of a percent on any trade. Whatever percentage you pick, the idea is to ensure that no one trade is really going to affect your day trading float, positively or negatively. Many traders don't appreciate how powerful this rule is. By simply changing the amount of capital you risk in your day trading, you can turn a system from returning 10% to returning a 100% per annum. Now, by increasing risk, and investing more in a trade, you do increase your chance for reward. However, you also end up increasing your draw down as well. You may want to do a bit of testing to understand the importance and the power of changing this one variable. I always recommend that you never exceed a 2% risk. Sometimes it is difficult to understand this simple fact; keeping your losses small will help you be successful in day trading.

Let's look at an example of the 2% rule in action. If we had a day trading float that was $20,000, using the 2% rule we set our maximum loss to be $400 on any one trade. With this maximum loss, we could have a string of 50 losses in a row before we had no more capital left to trade with. In most day trading systems the chances of getting 50 losses in a row is very, very slim. However, the chances of going broke are even smaller, because when you implement the 2% rule correctly, the calculation is based on the current float size. So, initially 2% of $20,000 is $400. However, if we experienced a loss first off, our day trading float would now be worth 19,600 dollars. We then calculate 2% of this new value, and set our maximum loss for our next position. 2% of $19,600 dollars would be $392. You can see that each time we experience a loss, our next maximum loss would shrink. As our portfolio increases in size, we're happy to take on more risk as well. I thought I'd play around with a few of the figures just to see what would happen if we had a string of six losses in a row. After receiving six losses in a row, our day trading float would have decreased to only $17,717. After six successive losses, we've only lost $2,283. Now, that's managing your risk.

Economic factors in forex trading  

The fact that the loss is such a small component of our day trading float makes it much easier to gain back those losses. In this example, w...

Economic factors in forex trading  

The fact that the loss is such a small component of our day trading float makes it much easier to gain back those losses. In this example, w...

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