I am on my learning journey and I have a few questions which I either cannot seem to find or I am getting mixed answers from different articles so If I can clear them up here that would be great.
My money management method I am wanting to use is 2% risk per trade which seems to be standard, how do you work that out if you have more than 1 trade open at the same time? Say that you have 3 trades open, is the 2% of your starting capital for that day? 2% of your total equity at that very moment?
If you are taking a trade that is a 1:1 RR, do you take in to account the costs of doing business? (Commissions, spreads, swaps). If say I want to be profitable if I am right 50% of the time, then I would need my 1:1 trades to actually be something like a 1:1.2 in order to account for the costs of doing business? Or do you just ignore those costs?
All fair questions, although this is an area which varies from one trader to another. So if you get a host of answers, you might find that they vary quite a bit, although they’re accurate for the trader posting them. Although, of course, you have no way to tell which of us are making money… But basically you need to find your own style, then distil from any answers you get which one works for you. If any!
Personally, I will have no more than 5% of my account exposed to the market at any one time, and never more than 1% exposed to any one trade. I take those numbers as a percentage of my account size at the beginning of that day’s trading.
I will sometimes have more than five trades open at a time, but only if I have trailed my Stop on some so that my total exposure to being stopped out is never more than 5%. It is generally less than that, as I very rarely open more than a couple of trades a day, and rarely leave a trade lingering more than four or five days before it hits profit.
I personally leave the costs of doing business out of that equation. I am only risking 1% per trade anyway, and with my style am usually holding traders over a number of days, so the costs get lost in the noise.
But as I said, this is the sort of thing you will refine over time, so take all of us with a pinch of salt.
@mjh2222, most likely a typo but you said 2% per trade, made not so good should be more like 1/2% per trade based on your stop loss setting. When computing risk the take profit doesn’t matter only the equity and stop loss.
I suggest you target no more than 1% max per trade and 2.5% of account equity for multiple trades.
The real winners in forex are consistently profitable over a long period of time.
It’s not always easy but forces me to understand how much I can risk. Slows me down so I don’t shoot from the hip.
I’m working out sticking to this on a demo account - emotions can be so much stronger than imagined - It’s easy for new traders to double down and revenge trade.
These are easy traps to fall into.
The rule does not apply to your open order in general. The 2% rule applies to each trade you open. Do not risk more than 2% of your equity on one trade. Once you understand that, you can figure out the rest