I know that money management is the key to profitable trading and that the pips school recommends 2% risks of capital/trade. That seems like a good starting point if you’re a newbie like me, but I was wondering if there is a more ideal % and whether or not that % changes with one’s trading pattern.
For example, should a day trader, risk only 1% of capital/trade since they will be trading a lot every single day? Should a position trader who holds trades for months risk 3% since they make so few trades? Is 2% the optimal level for swing traders using daily charts who hold trades for a couple of days to a week?
Any advice on this most important of topics is greatly appreciated.
2% is the usual maximum risk per trade. I have seen some traders say they will risk up to 10% depending on circumstances. The most conservative crowd puts a 1% limit on risk.
The way I calculate position size is by first determing my SL, and adjusting my position so that I can only lose the pre-determined amount. This I why I love Oanda and plan to use them if I prove worthy of a real money portfolio.
They let you buy individual units of currency pairs, and tell you exactly how big your stop loss will be as well as a take profit, which allows you to trade with the maximum safe leverage, (you never have to round down the number of lots you trade) This last feature is actually how I calculate my profits and losses for the backtesting I am currently doing, it really saves time and minimizes the hassle I experience while grinding through several hours of excel calculations.