Risk reward - day trading / scalping

Beginner Questions
1

Hi all, from what i have been reading it’s advised to risk ~2% of your margin per trade. So if i say had an opening account balance of £10k, then based on 2% i should risk ~£200 per trade?

Again, from what i have been reading, the suggestion is to work off a risk reqard ratio of ~2:1 i.e. if your risking £200 on a trade then the reward (take profit) should be in the region of ~£400?

Is this even possible (assuming you don’t catch the massive price jumps) based on small pip movements? I’m struggling to understand the calculation to see how many pips the price would need to go up inorder to make say £200 profit. Generally speaking the pip movement seems fairly small for GBP/USD having looked at the H1 chart, which then makes me question why risk £200 only to make say £40 (based on say 10 pip movement) for example?

2

The 2% rule was promoted by Dr. Alex Elder. He was a trader and author but not a committed day-trader and he wasn’t writing for day-traders. You’re right to question whether this rule will work for intra-day trades.

He clearly advises that unless you’ve already been successful trading off daily charts for at least a year, stay away from day-trading.

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3

Risk reward means the more you take risk, the more your return will be.

4

The more risk you take, the more the return will be. But I always say lower your trading risk because it will give you a moderate amount of profit.

5

Your return depends on the risk you take in a trade. I would say moderate your leverage amount because it will keep you out of risk.

6

I get that buy the bit I’m trying to figure out is how day traders are able to make say a few hundred pounds profit a day off the back of say roughly 40 pip movement a day and a conservative risk management strategy (~2%). Is the idea to put on LOTS of trades and average out or put on higher margin / leveraged trades so that the return is more.

In short, can you sustain day trading with say putting on £200 trades and make gains between 20-40 pips?

7

To make those kinds of profits on a daily basis you need a large position size, and the only way to do that without risking more than 2% is to have a very tight SL.

This also requires a decent amount of capital, or a very high leveraged account, which due to increasing regulations is hard to find through regulated brokers.