Ok. I hear about money management left and right and there is one thing i don’t get. If the general rule is not to risk more than 2% of total account, does it mean that the margin I use has to be 2% of the total account? or does it mean that I have to adjust everything in a way that a losing trade will not loose more than 2% of account?
Here is an example:
Account balance is $1000
If I open a position right know, lets say I go long on Cable and I use 2% of my total account, that means I use about $20 to open a position where my pips will be worth $0.05 and my losses will be determined by my stop loss. In a worst case scenario I get a margin call and I lose my $20
If I open a position but I use enough to make my pips worth $1 and I set a stop loss of 20 pips, I also lose $20 but this trade is potentially more profitable because if I win, every pip will be worth $1
Let me give you an example. I’ve using the Cowa-whatever system in a demo account for 4 weeks. I made some good trades and some bad trades but at the end I made 260 pips in 4 weeks. In every trade there was a stop loss of the same amount or less pips than the take profit. In every trade I opened a position where my pips were worth $1. In the cases I lost, I lost something like 30 pips=$30, but then a winning trade will hit with either the same amount or higher or sometimes even less but, one trade after the other I will quickly recover. I guess I’m not taking into account the posibility of consecutive losses but oh well, that what I’m here for, to hear the critics.
So bottom line, I want to understand money management better because at this point I do not see a problem with constantly trading $1 pips as long as I set good stop loss