7.0 How to use 2% trading rule in money management Video Lecture | Forex: Learn and Master Trading (English) - Business Basics

welcome back to capex forex trading comm
in this video we're going to discuss the
2% rule which is a rule used as part of
money management but many successful
traders around the world now this
well-known rule basically states that
even as trading conditions are 100%
correct or perfect don't risk too much
on a single trade now you will usually
see say poker players when they have a
really good hand go all-in because
they're certain that their hand is the
strongest if that rule does not apply to
forex trading because there are always
factors outside of our control that can
turn prices against us and basically
take out our stop loss so the point of
the two percent rules there even if even
if the conditions are 100% perfect
always ensure that you know what the
worst case scenario is so the two
percent rule basically applies to the
risk part of your trade I eat the amount
of pips that you're using for your
stop-loss so if you're using 10 pips for
your stop-loss you must ensure that the
amount of money you assign to those 10
pips is no more than 2% of your total
investment per day so you're basically
setting yourself a 2% loss per day and
once you hit that loss if you got taken
out by number of chair by number of
factors then that's where you stop so
let's say that you've got $1,000 in your
trading account now 2 percent of 1000 is
$50 so $50 is the maximum that you're
allowing yourself to lose per day so if
you're trading are using a 10 pip stop
loss the max that you should invest is
$5 per pip and the reason for that is
because $5 times 10 pips which is your
stop loss equals $50 which is your
maximum loss per day which of course
equates to 2 percent of your total
investment so let's have a look at that
example on the chart so the area that
we're looking at is here so let's say
that we wanted to enter here and our
target was here so
so what we have is just a line to define
that so we've got our entry and our
targets or entries here our target is
here which is equivalent to this
previous high now if we're playing or
using a ten-piece stop-loss let's say
that for the sake of the argument the
gap between the top line and the bottom
line is 10 pips we must ensure that
those 10 pips are no more than 50
dollars which of course like we said was
equivalent to 2 percent of our total
investment if we get stopped out that
such that's our limit for today if we
continue and reach that target luck
within here then when network then we'll
have a new 2% figure because our total
investment will be our winnings plus the
thousand that we already had now to
spread out the risk you can apply the 2%
rule to 2 or 3 trays rather than just
one so this way you are guaranteed to
have 3 goes at generating profit but
your investment will be lower as that 2%
risk has to be divided into 3 portions
so after you have your results from all
three trades you can apply the 2% rule
to the new total of this investment
amount that you have and lastly remember
to include any of the charges in your
calculations such as the spread or the
overnight swap rate if you're using
higher time frames just to ensure that
your calculation is as specific as
possible ok so that concludes this
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Thanks