Never Take Risks More Than 2% in Forex Trading
Referring to the title of this article ” Never risk more than 2% ” of the capital we use to open a trading position every time you will understand what Risk Management is meant in the previous material. And why do I mention 2% instead of 5% or 8% then the illustration of the calculation below can answer it.
To apply this risk management discipline is needed from a forex trader because it is very closely related to personal emotional.
Well, for more details why the risk limit that we take is very small, that is 2% of the capital for every time you open a trading position, then the illustration of trading risk calculation of 2% compared to the following 10% can help clarify our reasons.
When you have trading capital of $ 12,000 and take a 2% risk for every time you open a position then when you fail 20 times trading forex your total loss is $ 3,825 or 31.87%.
But the fact is that it’s impossible for 20 times to open a forex trading position, you always fail. For more details, we will discuss in the next article “Reward to Risk Ratio”.
And when you take a 10% risk, your total loss is $ 10,379 or 86.49%.
And let’s look at the table of the magnitude of the loss to the amount of profit needed to return the following return on capital,
Based on the above table if you take a 2% risk, with a total loss of 31.87% above, you should be able to book a profit of approximately 44% (of the final capital) to be able to return the capital.
And you have to book a profit of 600% (from the final capital) more if you experience a loss of 86.49% to be able to return the capital.
This is the reason why we should not take a risk tolerance of more than 2% of capital for each time you open a trading position because it will require a very strong effort just to return capital.
The magnitude of this risk is actually a limit of tolerance for mistakes or failures that we have done.So the greater the trading risk we take, the greater the tolerance for the mistakes we have taken.And what is wrong is that we cannot let it drag on and we must fix it quickly by making the right decision.