Hello Traders,
In this video I discuss the value of the 2% rule in Forex Risk Management. In this lesson I show you how one simple change can take you from being a losing Forex Trader to a Profitable one almost overnight (if you aren’t already using the 2% rule). Undisputed proof in the video.
If you find value in this video please consider sharing it with a friend who too will find value and thank you!
Enjoy!
really all you are saying is following a consistent risk amount results in a profit on a profitable account
conditional on the account being profitable and you not already having a better risk analysis formula
In a nutshell yes. The short answer is yes. The video clearly shows that, that the losing Forex Trader who was using a pip method for determining his/her risk and entry points, if they would have just changed ONE thing in their trading methodology it would taken him/her from being a losing Forex Trader to a Profit one. If they kept their same results and win probability the same they go from being a losing Forex Trader to one who would have made a profit at the end of the day! How AWESOME is that!
Have a magnificent day on PURPOSE!
FXALTareeq
it is awesome, real newbies would take a lesson from that
Nice video.
Only a few remarks on the data:
you counted the trade in row number 4 as a loss, while it is a positive number (red though)
This makes the win rate 60% and not 55%
the average positions in percentage of the winners are less than the losers (1.95-2.44 or 1.68-2.12 depending on whether row 4 is positive or negative). This could be bad luck, or the trader has a problem like taking profits to early or letting losses run.
nonetheless I always like the advice of keeping your risk consistent as a percentage of your balance (or for me preferably equity, as you would be more on the safe side that way if running positions are in the hole)
have a nice day!
Thank you FXAlTareeq. I must say that was a very informative video and presentation. Without a doubt Risk Management is vital to our success as Forex traders. Are you a Forex Instructor or Teacher? I like your style and how you covered this topic.
I look forward to following you.
Thanks,
Troy
This thread caught my attention, but now I feel baited like much of the bad click-bait articles that overwhelm social media. My question is simply this: Where is this “undisputed proof”?
I was unable to replicate this experiment/example in a way that I felt 2% risk was undoubtedly the best way to go from a losing trader to a winning trader. Allow me to elaborate.
In my opinion, and to keep it simple, there are 2 ways to be unprofitable: either by not having an edge, or by having an edge and using poor money management. The example given in the video seems to be focused on the second, so I did so as well. The video showed profit/losses in arbitrary numbers; risk is risk and in both winning and losing scenarios, the amount doesn’t matter – if it’s negative it’s an x% loss and if it’s positive it’s an x% gain. Therefore when I tested this I just used a binary generator, 1s and 0s, to denote wins and losses.
The “Fixed” tab shows a simulation of fixed risk, and even win rate (10 wins, 10 losses). The “Varied” tab shows a simulation of a random risk generator between 1 and 3. The “Fixed winning” tab shows the same simulation, but with 11 wins and 9 losses instead. The “Varied winning” tab shows this simulation with a varied risk between 1 and 3 as well. The results tab shows two variations of varying risk parameters; 1 for risk between 1-3% (same as fixed 2% in the long run but oscillating) and one for 1.5-4% (averaging higher than 2%). The numbers below show simulations of end equity at the end of 20 trades with 11 wins and 9 losses. Roughly speaking, it seems that using a fixed risk may be better than using a varied risk that averages out to the fixed rate (however, in reality no one uses a random risk generator to determine their risk). In over 1000 trials, the varied approach performs worse than using a simple fixed approach by a margin of about 3% which is negligible in my opinion. However the real evidence for my case lies in the second number, which states the following:
Using a varying risk percentage between 1% and 3% will result in the trader losing money roughly 10% of the time.
An arbitrary buffer of 5% seems adequate, which would lead to the following statement:
Using a fixed risk rate of 2%, rather than a varying risk rate of 1%-3% will change a trader from a losing trader to a winning trader about 5-15% of the time.
The second varied simulation on the “Results” tab really is just there to show that when there is a real edge (win rate>50% & R:R=1), risking more is better.
It seems to me that if you have a legitimate edge, using a fixed risk really doesn’t do that much for you in the long run. IMO DutchTrader1 is spot on; there is an edge in this specific example because the average risk in the losing positions was greater than the average risk in winning positions.
I look forward to learning more about this proof.
Undisputed.zip (117 KB)
[QUOTE=“LiquidGenius;737955”]This thread caught my attention, but now I feel baited like much of the bad click-bait articles that overwhelm social media. My question is simply this: Where is this “undisputed proof”? I was unable to replicate this experiment/example in a way that I felt 2% risk was undoubtedly the best way to go from a losing trader to a winning trader. Allow me to elaborate. In my opinion, and to keep it simple, there are 2 ways to be unprofitable: either by not having an edge, or by having an edge and using poor money management. The example given in the video seems to be focused on the second, so I did so as well. The video showed profit/losses in arbitrary numbers; risk is risk and in both winning and losing scenarios, the amount doesn’t matter – if it’s negative it’s an x% loss and if it’s positive it’s an x% gain. Therefore when I tested this I just used a binary generator, 1s and 0s, to denote wins and losses. The “Fixed” tab shows a simulation of fixed risk, and even win rate (10 wins, 10 losses). The “Varied” tab shows a simulation of a random risk generator between 1 and 3. The “Fixed winning” tab shows the same simulation, but with 11 wins and 9 losses instead. The “Varied winning” tab shows this simulation with a varied risk between 1 and 3 as well. The results tab shows two variations of varying risk parameters; 1 for risk between 1-3% (same as fixed 2% in the long run but oscillating) and one for 1.5-4% (averaging higher than 2%). The numbers below show simulations of end equity at the end of 20 trades with 11 wins and 9 losses. Roughly speaking, it seems that using a fixed risk may be better than using a varied risk that averages out to the fixed rate (however, in reality no one uses a random risk generator to determine their risk). In over 1000 trials, the varied approach performs worse than using a simple fixed approach by a margin of about 3% which is negligible in my opinion. However the real evidence for my case lies in the second number, which states the following: Using a varying risk percentage between 1% and 3% will result in the trader losing money roughly 10% of the time. An arbitrary buffer of 5% seems adequate, which would lead to the following statement: Using a fixed risk rate of 2%, rather than a varying risk rate of 1%-3% will change a trader from a losing trader to a winning trader about 5-15% of the time. The second varied simulation on the “Results” tab really is just there to show that when there is a real edge (win rate>50% & R:R=1), risking more is better. It seems to me that if you have a legitimate edge, using a fixed risk really doesn’t do that much for you in the long run. IMO DutchTrader1 is spot on; there is an edge in this specific example because the average risk in the losing positions was greater than the average risk in winning positions. I look forward to learning more about this proof. <img src=“301 Moved Permanently”/>[/QUOTE]
Focus on finding 3:1 and you’ll be ok.
Thanks for the input but you’ve completely missed the point.
[QUOTE=“LiquidGenius;737964”] Thanks for the input but you’ve completely missed the point.[/QUOTE]
Yes. Completely.
good trading skill
Following 2% rule is not easy. I get greedy so many times but so far i have managed to keep control, but overall it’s very hard to get things right.
If you’re having some trouble do like the Bank Traders and get an Accountability Partner, one who will look over your trades and approve them i.e. make sure they meet your Trading Plan’s criteria for an given trade. It is just an suggestion. It will help to keep emotions in check and your trading on track.