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Nial Fuller

NIAL FULLER
Professional Trader, Author & Trading Coach

Why I Don’t Use The 2% Money Management Rule

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By in Forex Trading Articles Last updated on | 59 Comments

money management mythsToday’s article is about debunking the 2% money management rule that is so popular among much of the trading community. A lot of people out there have disagreed with me on this topic in the past so I wanted to write about it today to clarify my views on it. I’m going to put forward some strong arguments against relying on the 2% rule that I hope will save you money and open your eyes. You really need to pay attention to what I’ve got to say today because it could improve your trading results significantly.

Debunking the 2% rule

The 2% money management (MM) rule likely started in stock trading and longer-term investing many years ago. It is based on the idea that you would be in multiple positions at any one time and that you’d only risk 2% of your net equity on any one of those positions. For example, you might have 100k in your account and 20 active stock trades at 2% risk each. The 2% rule really started as a way for investors to spread their risk capital amongst a diversified spectrum of stocks and investments, but it was never intended to be used the way that many Forex traders use it these days…

The idea that the active Forex swing trader should also risk 2% of his or her account on every trade is simply illogical. The 2% rule is essentially a myth that got perpetuated around the trading world because it seems to make sense and is easy to understand, but just because a bunch of people are talking about something, doesn’t mean it is correct or useful for every situation, in fact, often the opposite is true. There are some VERY big problems with the 2% rule if you are an active Forex swing trader who generally is only in one or two positions at a time, holding them for a few days or maybe a week on average…

Why the 2% rule is essentially rubbish…

First off, Forex is highly leveraged, much more so than a stock trading account. This is the first and foremost reason why the 2% rule makes no sense for the Forex trader or for any trader of highly-leveraged instruments. Let me elaborate…

Forex should be thought of as a margin account, because that is essentially what it is. In other words, you really only need to keep enough money in your trading account to cover the margin of the position sizes you normally trade…you don’t need to keep ALL your trading / risk capital in your trading account, any professional trader will tell you this. Since we are only in at most, a few positions at a time that we can use high leverage on, and we are only holding for typically a few days to one or two week maximum, we do not need to diversify our risk across many different markets, in other words, diversification in Forex is irrelevant.

Account size is arbitrary in Forex because a Forex account is only a margin account, it’s only there to make the deposit / have a deposit to hold a position. Nobody who understands these facts would put ALL their trading money in their trading account because it is simply not necessary.  What you put in your trading account does not necessarily reflect all the income you have to trade and it does not reflect your overall net worth. In stock trading, you need a lot more money to control more money because there is less available leverage. Typically, if you want to control 100k worth of stock you need to have 100k in your account. Forex is much more leveraged as I’ve already said, and this means that to control say 100k of currency, which is about 1 standard lot, you only need around $5,000 in your trading account.

The rich guy and the poor guy

Whether you consider yourself “rich”, “poor” or “middle class”, there’s just no way that risking 2% of all your capital makes any sense. There is a skill factor involved with trading that varies widely from one trader to the next, given this fact, it makes no sense whatsoever that a new trader with only say 10k to his name should risk 2% of his account on any trade; he has no real trading skill yet and only 10k to his name; with the 2% rule, all he will do is lose money slowly, at best. You see, money management is dependent on both trading skill and personal risk tolerance, it should not be just some arbitrary percentage of your trading account.

For example:

Let’s say a guy in Singapore only has 10K to his name, that is all of his personal money, everything. If he follows the crowd and reads about the 2% rule on one of the many trading websites it can be found on, it means he will be risking $200 per trade (2% of 10K)! This is just totally ridiculous! The fact that so many traders are starting out with very little money to their name and they are told to risk 2% of all their trading money, really is borderline immoral. Skill levels and personal risk tolerance vary dramatically between traders, and this is another reason why the 2% rule is complete rubbish.

Conversely, let’s say a guy in Australia has 2 million dollars free to trade with, he is obviously not going to put all of that in his trading account, because he doesn’t need to. He may put 20k in his account just to cover the margins of the position sizes he normally trades. So if he uses the 2% rule, he is only going to start out risking $400 per trade, because 2% of 20k is 400. Does it make sense that someone with 2 million dollars of risk capital is only going to risk $400 per trade? If he is trading like a sniper as a swing trader in the Forex market (what I teach and how I trade), then no, it makes absolutely no sense at all. I hope you are starting to see why basing your risk per trade on 2% of the money in your trading account is simply irrelevant.

Thus, whether you have 10k to your name or 5 million, the 2% rule is pointless and even harmful if you are trading markets like Forex and others. It just does not make any sense and it does not apply to Forex like it might to longer-term stock investors.

Compounding is not what it seems

realityThe big attraction to the 2% rule seems to be the notion that as you win trades and build your account, the money will compound and the 2% rule will naturally increase your position size, and conversely will decrease your position size as you lose. This sounds great in theory, but in reality it is really just a bunch of B.S. that is yet another reason why the 2% rule is a giant pile of rubbish…

The 2% rule is nothing more than propaganda spread by brokers to see you lose slowly, it helps you stay in the game longer… which is great for the broker because they collect more commissions and spreads. The 2% rule is really for losing traders to lose their money slowly…if you’re winning it’s not going to work to your advantage like it seems like it will in theory. What about drawing money to live on? If you really start doing well you are going to start withdrawing money from your trading account, so that pretty much sucks most of the wind out of the “compounding” theory. You cannot compound your trading profits in your trading account forever, it is not realistic or practical, forget about compounding.

Yes, 2% compounded will slowly increase over time, but you’ll be drawing on your money to live on, and original account size is arbitrary; the guy who has some serious money to trade who has only started off at 10k, when he gets confident he might dump 100k in his account…thus, what’s in the account is arbitrary…what’s important is managing your money properly and knowing how much you can risk per trade to stay in the game and stay profitable.

We’d all like to turn 10k into 1 million compounded, but it never happens like this. I’ll remind you that some of the greatest hedge funds of all time have drawn down up to 50% of their net worth on their equity curves. That just shows you the unpredictability of your equity curve. The compounding effect is stupid because it assumes you won’t have these hiccups in your trading, that’s why I prefer to bank the profits as I make them. Longer-term compounding is just for dreamers…

OK, so how much should I risk per trade Nial?

Your risk per trade is a very important dollar figure that YOU need to come up with based on your personal circumstances which will encompass a variety of different variables.

Quite a few of the pro traders that I know, as well as myself, never even think about the 2% rule or percentages…because we know it is irrelevant and because we know that there’s no mathematical advantage in thinking like that. Instead, we think in terms of dollars risked per trade and what our personal risk tolerance is; basically how much we are willing to risk on any one trade. We might have 1 million of trading money but will only have 50k in a Forex account. A lot of the margin in our account is used to hold a position and we don’t have a lot of extra money just sitting in there for no reason.

I get a lot of emails from traders asking me how much they “need to start trading live” or how much they should fund their accounts with. The answer I give to them is always basically the same:

1) You need to determine how much YOU are comfortable with having at risk at any one time in the market, and only risk THAT dollar amount or less. There’s no sure-fire way to determine this dollar figure besides a little trial and error and self-reflection. If you’ve risked an amount that causes you to remain preoccupied with your trade all day at work (constantly checking the market on your phone) and unable to sleep at night, then clearly you’ve risked too much. I know it might be sounding a bit cliché to any of my senior followers by now, but the best gauge to whether or not you’ve risked too much on a trade is whether or not you can truly set and forget the trade. You should not feel any urge to sit there staring at your charts after you enter a trade, if you feel that urge then you’ve probably risked more than you are comfortable with losing.

2) Obviously, your personal trading abilities come into play in determining how much you’ll be comfortable with risking per trade. If you’re relatively new or have just begun trading live, you’ll probably need to risk less per trade than someone with 10 years live account trading experience. As you improve and build your confidence you may feel more comfortable increasing your risk per trade a little bit.

As you can see, how much you should risk per trade is a somewhat personal question that requires some thought, time and trading experience to properly answer. It is not and should not be as easy as just saying, “Oh I will just risk 2% of my account, that sounds easy”. Money management is not easy, and anyone who tells you it is, is lying to you or doesn’t know what the hell they are talking about. Trading is the easy part of trading (does that make sense?)…money management and trader psychology (controlling yourself) are the hard parts!

MM and method are no good without each other

Just because you’re managing risk mechanically does not mean everything will “just” workout. Mainstream trading literature; websites, books, eBooks, all of these will have you believe that simply risking 1 or 2% will keep you in the game for the long term.

Whilst I agree that money management (MM) is crucial, you need to remember that if a trader was to draw down 50% of his first $1,000, he would then have to make 100% to get back to breakeven. Therefore, we’re missing a very important variable in this story…for any MM strategy to work, you still have to have a solid edge (solid trading method). There’s no point in having a good MM plan if your trading method is no good. Whether you use the 2% rule or fixed dollar risk, you’ll still blow up your account if you’re trading edge is not solid. MM should be thought of as a combination of trading method and money management, because money management alone won’t ‘save you’ or make you money in the market.

Whist the 2% rule may protect you as a beginner, you’ll probably never really move forward because you’ll be trading a very small amount…you have to up the ante and have confidence as your trading skill improves.

The 2% rule plays tricks with your mind

trading mind gamesWhen people think to themselves “I’m only risk 2% per trade, that’s not too much, and it will decrease my position size as I lose”, it literally makes them less sensitive to the risk in the market and to the threat of account-destruction that results from over-trading.

When you lose decreasing amounts of money on every-trade it does something that many traders don’t think about; it makes you want to trade more because you keep thinking that you are “Losing less on every losing trade”. This is just a really stupid way to try and manage your money, and it clearly leads to gambling and over-trading. You don’t just stay in the market all the time because you are losing less and less money, this is no different than a gambler losing his gambling money at the casino.

Many day-traders and scalpers like the 2% rule because they trade with such high frequency that the 2% rule allows them to say in the game for a long time, usually just long enough to blow out their accounts, quit trading or realize that they should be trading higher time frames and with more patience.

Your risk per trade changes with skill, experience and confidence. It’s something you have to gauge. It is not something you automatically adjust up or down after every trade, as you do using the 2% rule.

Conclusion…

At Learn To Trade The Market, it’s all about being frank with people; I don’t sugar-coat anything, and trust me, there’s a lot of sugar-coated B.S. floating around out there in the trading world, hoping to catch your interest (as you probably have figured out by now).

Remember, money management is no good without a high-probability trading method, and if you guys have been reading my blog for a while, you know I am a huge advocate of price action trading. Implementing a solid price action trading method with a sound MM plan is in my opinion, the quickest path to trading success. Despite this ‘recipe’ for success, there is NO sugar-coating it, you still have to put the study and effort in, and it will take time for you to turn the recipe into a masterpiece.

If you’d like learn how I harness solid money management with a professional trading strategy to achieve results, checkout my price action trading course and members’ community.

About Nial Fuller

is a Professional Trader & Author who is considered ‘The Authority’ on Price Action Trading. He has a monthly readership of 250,000+ traders and has taught 20,000+ students since 2008. Checkout Nial's Professional Forex Course here.
  1. John January 7, 2016 at 5:12 pm

    Thanks. I was going over this today in my head, trying to comport the reasoning with the many other variables, and the ‘rule’ didn’t hold up or make sense. While it may (or may not) be well-intended and have some statistical premise, it just seems wrong to apply a static numerical rule to such an organic, multi-variant action with so little regard for context. We arrived at some of the same ideas, such as dollar value vs margin and environment.

    There’s a lot of good reasons not to over-trade and real ways to find out what that means to the person and how they get to that definition. And caution is always implied.

    But I too think its a bit misleading to teach people that they can have actuarial insurance by accepting a dogmatic number as something that will save them from strategic threats to their money and trading. Its too fluid of an activity to suggest static rules. It’s like trying to apply roulette odds to a game of poker. It just doesn’t fit.

    Reply
  2. Katlego November 30, 2015 at 7:47 am

    2% rule is rubbish never used it and I still have a positive expectation on my trading performance.

    Reply
  3. Peter August 23, 2015 at 10:07 pm

    Hi Nial,
    Absolutely amazing article. I would risk basically by 20/80 rule for micro account and I am comfortable with it.

    Thanks a lot

    Peter

    Reply
  4. david June 8, 2015 at 7:53 pm

    Great article nial and very well put i used to use percentages but then changed to dollar amounts and just decided on an amount im prepared to lose and decided on an amount i will pay myself.great job nial love the articles.

    Reply
  5. Lee March 21, 2015 at 9:30 pm

    I agree and disagree.

    A relevant post to the newbies. Everyone should know not to keep trading money in your account, look what happened to Alpari! Its also common sense to know the money you can risk, should be your trading capital which should be kept in a safe high interest bank account which offers fast withdrawals.

    I quit my job as an engineer to which I was making £50-70k per year, I worked out I needed 2K per month to live comfortably and quit my job, as my mortgage is nearly paid and I have low outgoings. (I hated my job).

    Therefor: 50K trading capital at 2% per trade = £1000.00 S/L or risk per trade/ 2-4 perfect setups on H4/D1 charts per month. I aim to make 50% per year and 2% is the number I won’t lose sleep over! This equates to £24K per year profit to which I will live off.

    (Note: If I lose 3 trades in a row I will not trade 2% of 44K the 2% will remain of the balance of 50K. So I agree with you there).

    After year 1 of quitting my job and being successful I will have enough data to decide whether I should increase to 3%. Or at this point try to increase my capital.

    But its agreeable, with 1000$ account 2% won’t get you anywhere.

    Cheers.

    Reply
    • Nial Fuller March 21, 2015 at 9:34 pm

      Lee, nice comments, whatever makes sense for you is what you should do. I don’t like % of account risk model, and I can see you agree partially. My post is designed to get you thinking and not just buy into the ideas normally discussed around the net about money management, at least I have got you thinking :).

      Reply
  6. Rob April 19, 2014 at 9:45 pm

    Great article

    Reply
  7. yvan March 11, 2014 at 10:25 am

    Nial, thank you for this article. But i still do think that the 2% rule is important for newer traders as it helps keep them out of danger. An amount based on personal preferences at first may not be so relevant and rational as we all know beginners are very greedy when they first start. If you have been trading profitably for a few years, know the ins and outs of your methodology and are fully self aware and master of your emotions then I agree that the 2% rule serves no purpose at all. Correct me if i’m wrong. Again thank you for challenging conventionnal beliefs.

    Reply
  8. Joshua January 9, 2014 at 8:34 am

    HI Niall

    Great article, i start my forex career in Feburary i commence my Forex training with Knowledge to action in two weeks i already understand money management risks because im currently also doing my diploma in share trading with Wealth Within and to be honest i also hate this 2% rule, obviously at the start when your perfecting your techniques its a good idea to reserve capital but once you become confident i will be risking more and its refreshing to see someone else come out and say it. Gotta risk it , to get the biscuit ;)

    Reply
  9. Iqubal October 18, 2013 at 5:59 pm

    I have a number of your article all of them very informative as well as thought provoking and this article more or less confirms my risk appetite. I have abandoned the 2% rule for quite a while and found that it has served me well. Thanking you for and excellent article.

    Reply
  10. Luca September 16, 2013 at 9:22 am

    I love Nial´s Articles. :-)

    Reply
  11. Ronnie Koh September 15, 2013 at 5:57 am

    Dear Nial,

    I fully agree with you. Please allow me to share alittle of my own 2cents worth and my trading journey.

    Thanks for confirming what I’ve been doing for some time now i.e. I threw out the 2% risk rule….

    Although I did not take the time to work out the numbers mathematically ( I suck at maths!!! ) my contention was –

    1) Yes, you need a good or at least credible if not solid edge to your trading method. ( Learnt the hard way and wised up to that one line ) simply because if you mess up on every trade you enter it doesn’t matter how much you are risking. You WILL go broke!!! …..sooner or later….as I have more times then I care to remember!!!.

    So I worked on sharpening my entry timing SKILLS…..First!!!

    2) Next I set my risk at 25 pips or less with every entry. My contention here is if I get stopped out it only means that my timing was off….due to my lack of Self Discipline and Patience…..provided I read the pending price move correctly…..at times a re-entry was necessary.

    For once, my trading graph is on an “uptrend”.

    So dear fellow traders, to me it is Skill, Self Discipline, Patience then MM. Cos without the first 3 prerequisites, no amount of MM will help.

    So……..bull to the 2% rule and thanks again Nial for showing and teaching me a thing or two about Price Action, Pinbars and a clean working chart.

    Good trading all! ;o))

    Regards,
    Ronnie.

    Reply
  12. Keith Loy September 14, 2013 at 9:04 pm

    Cheers for that Nial, that’s just what I needed to hear, I was going to compound @ 2% risk and put all of my money into my trading account – I’m going to take your advice instead and enjoy my profits – thanks

    Reply
  13. naveen September 14, 2013 at 2:19 pm

    Thank you Nial sir for continuously mentoring us.

    I am having 66% of trading capital in my trading account and 33% of capital amount in my bank account.Of course, the trick is learned from you only.

    But I failed to keep the Dollar risk / trade consistently and I made mistakes by changing frequently.

    Reply
  14. Uzn September 14, 2013 at 12:53 am

    Nial: Excellent article. This is an “eye opener”. Your advice to decide how much one is willing to risk and to use the money made to live off, is on the money. Keep up the good work.

    Reply
  15. jude Erameh September 12, 2013 at 11:05 pm

    Thank you very much for this lesson

    Reply
  16. Taf September 12, 2013 at 10:01 am

    Excellent article Nial. Very well articulated and the examples you provided are fantastic. I’m sure this article will help make a difference to many in the LTTTM trading community.

    Cheers,
    Taffy.

    Reply
  17. Rafa September 11, 2013 at 4:12 pm

    One word: Excellent!!!

    Reply
  18. yusuf hammed September 11, 2013 at 3:13 pm

    FX Guru,because is so amazing. Thanks

    Reply
  19. Alanw September 11, 2013 at 2:56 pm

    Hi Nials, to be honest , the only lesson to be learnt ,is from your coaching and advice, they rest , as you say is B.S.
    Cheers W

    Reply
  20. Carolynn September 11, 2013 at 11:07 am

    Nial, Thank you again for your weekly articles that help keep me on track and encouraged ! Are you planning to come to the Chicago area any time soon ? That would be more than awesome.

    All the best,
    Carolynn

    Reply
  21. FX September 11, 2013 at 10:16 am

    Exactly……. worst than a snail race.

    Reply
  22. Lyte September 11, 2013 at 10:06 am

    Thanks Nial. Totally awesome!

    Reply
  23. Franco September 11, 2013 at 7:09 am

    What to say.. I will keep this article as a milestone. Thanks.

    Reply
  24. Ludmila September 11, 2013 at 4:54 am

    Thanks a lot for your article. Absolutely great! I always suspected that there is something wrong and illogical about three sacred “nevers” of Money Management that managers in dealing centers hypnotize us with:
    1. never risk more than 2%!
    2. never use locks instead of stop-loss!
    3. never build pyramids!
    Waiting for your new articles on MM, especially piramiding.

    Reply
  25. Anthony September 11, 2013 at 4:41 am

    Thanks Nial
    This is a solid Ideas . I Have read another article you write “Don’t Measure Your Profit in percentages or pips”. I totally Agree with You. how much we should risk per trade is a some what personal question that requires some thought, time and trading experience to properly answer. Our risk per trade changes with our skill, experience and confidence to our trading strategies. and the “fear test” or “sleepless night test” and “the set and forget” concept is the traning our brain into accepting losses. very open my Mind and my eyes, the article make me be a higher lever Trader, thanks Nial and GBU

    Reply
  26. Hendrik September 11, 2013 at 2:46 am

    Nice article Nial!

    It all comes down to two simple rules.

    First and most important one: Know what You’re doing!

    second: You have to take risk to make money.
    (Million dollar Traders)

    Reply
  27. ed September 11, 2013 at 2:44 am

    Yes I agree. Most of the traders or just new in forex is always talking of 2 to 3% risk. I think they are attracting to loss because they keep on applying risk hehehe… law of attraction.

    Reply
  28. ann September 11, 2013 at 1:29 am

    Thanks Nial.
    Another great lesson.I particularly note this truth…*The 2% rule plays tricks with your mind*,*it literally makes you less sensitive to the risk in the market and to the threat of account-destruction that results from over trading.* I am a newbie and this is an eye opener for me.God bless you Sir.

    Reply
  29. Pantelis September 11, 2013 at 1:28 am

    Outstanding approach! Direct to the point. We are looking for the way to become successful with the least wasted time. In my opinion following any rule (risk % /capital) just block those who have the ability to become successful! On the opposite site those people who do not have the proper psychology characteristics or money management approach there is no way to have the disciple to follow 2% rule… Personally I believe Nial approach is the best way. Learn to trade the market, improving ourselves and let experience and skills setting the risk we can handle. Nial you are super Man..Thanks once again.

    Reply
  30. Haroun Kola September 11, 2013 at 1:11 am

    Thanks Nial. Excellent article. I too have heard the 2% figure bandied about at various courses I’ve attended. Your approach makes sense.

    Reply
  31. Jens September 11, 2013 at 12:53 am

    What I miss in your article is your personal hit rate of your trades..If you have your history journal up to date and you know the percentage of your trades that are successful you can more or less calculate what is an acceptable risk. Then you should also look at the maximum trades you lost in a row and realize that it is statistical possible this happens 2 times in a row. If you have enough data you can make a Gauss curve and stay under 3% or 5% risk (Number of trades not money) that blow up your account.

    I agree that the risk should be taken from the free available money for trading. From that you can calculate how much you need in your trading account to accomplish this. Having money in what ever account is also a risk, so for me it is logical not to put al your free trading money there

    Thanks for the Article and your great site Nial!

    Reply
    • Brian Harty April 26, 2017 at 7:17 pm

      I couldn’t agree more Jens. Having the same rule for a method that hits 30% of the time as you would for a method that hits 65% of the time is crazy.

      Over 1,000 trades with a 65% win rate the chances of hitting 10 losers in a row is 1.8% while the chances of win rate of 30% hitting 10 losers in a row is 100%.

      You need rules in place but the “one size fits all” approach is seriously flawed.

      Brian

      Reply
  32. billybob25 September 11, 2013 at 12:28 am

    True trading authority, this guy should write a book or something, i know i’d be the first one to buy that’s for sure

    Reply
  33. Adebisi September 11, 2013 at 12:14 am

    Nial, you’re absolutely right. Keep it up. But beware of those unscrupulous brokers as you are revealing there secrets. I love you.

    Reply
  34. Jack Maverick September 10, 2013 at 11:50 pm

    Good thought, Sy – “You never know which trade will win or lose” should be etched in stone above every trader’s desk. I couldn’t begin to count the number of times that trades I thought were sure winners ran over me, while trades that I considered very “iffy” made me a bundle of profit.

    Jack

    Reply
  35. Jack Maverick September 10, 2013 at 11:47 pm

    Nial – Good article, but I couldn’t help but smile when your examples referred to people with 50k or a $1 million in their trading account. Like MANY other forex traders, I started out with a whopping $50 to trade with in a micro account (and it took me awhile just to save up that much). Anyway, I certainly didn’t abide by the 2% rule, but for totally different reasons – in my case, if I hadn’t risked MORE than 2% per trade, it would have taken me till about the year 2015 to build my account up to $100. My money management rules were as follows: (1) Never risk more than half as much as the reasonable potential reward (e.g., don’t risk more than 10 pips if your reasonable take profit point is less than 20 pips), and (2) never risk on any one trade an amount that would draw down your total trading capital by more than 10% (that’s my “make sure you don’t blow out your account” rule – I’m fairly confident of my ability to avoid putting on 10 losing trades in a row, trading as I do as a scalper and short term swing trader). And that’s still how I operate – I risk about half of what I’m shooting to make, minimum, for the day. And as long as I’m profitable 3 days out of 5 (and actually I normally do better than that), I make progress each week.
    Cheers, and happy trading,
    Jack

    Reply
  36. Robert September 10, 2013 at 11:18 pm

    Thanks Nial its so true and thanks for sharing

    Reply
  37. mike September 10, 2013 at 11:15 pm

    Hi Nial,
    it depends on how u interpret the 2% MM. It will be similar to you absolute amount MM. If a trader risked 2% of his capital, he will be looking forward for 2R or 3R returns.

    Furthermore, a trader could have 100k capital and he put 10k in the trading account to trade. He can afford to lose 2k in the trading account if he applies the 2% MM rule.

    Reply
    • Henrique Araujo September 11, 2013 at 1:07 am

      The main point I believe is the following. If you put 10K on a trading account that you can afford to risk entirely, what’s the point in opening a position size of 2 lots? Or two of 1 lot? Most of your margin is not being used, therefore not being monetized. If I understood correctly, you should put most of your trading money at work, in one or two trades, in the right time, always using a stop-loss and with a good risk/reward ratio. If you´re using the 2% rule maybe that´s because you´re not choosing your trades/entry levels correctly and bleeding slowly money out. You think that rule will save you just solely because you don’t lose your bank altogether.

      Reply
  38. John French September 10, 2013 at 11:14 pm

    Hey Niel,
    Very solid advice! Not only is it good for MM,anyone can apply this to many areas of there lives. Thanks Niel.
    John

    Reply
  39. Karl September 10, 2013 at 11:11 pm

    “… you really only need to keep enough money in your trading account to cover the margin of the position sizes you normally trade…”

    Further reading is unnecessary in fact. Brilliant argument to the point.

    Reply
  40. Fola September 10, 2013 at 11:11 pm

    I somewhat disagree with you Niall. Every trader, (esp. beginners) needs a set of guidelines and rules that should govern their trading, one of which is money management. For most beginning traders, it is difficult, if not impossible to just decide how much is worth losing as he/she is a novice. The percentage rule helps to understand and comprehend how much to risk on a trade.
    Just deciding how much I’m comfortable with losing can lead me to risk too much (out of greed) or risk too little (out of fear)

    Reply
    • ashraf May 23, 2015 at 11:45 pm

      hi,
      sorry.
      I could not help stopping myself to comment on your say. It does not mater how much comfortable you are with losing money or risking it out of “greed” or “fear”. What really matters is to curse this “greed or fear” and I bet you won’t be disagree with Nial.
      regards!

      ashraf

      Reply
  41. Felix September 10, 2013 at 11:11 pm

    Thank Nial, good and solid article.

    Reply
  42. Athrun01 September 10, 2013 at 11:07 pm

    Ah yes, I remember the days of trading 1-2% per trade….”The slow death” I call it. It’s a perfect way to never get anywhere! A definite edge, with a solid trading plan and a set $ risk amount is the way to actually make money and get ahead in this game!

    Reply
  43. Samuel September 10, 2013 at 10:43 pm

    Mr Fuller,
    Indeed, this another profitable lesson to traders especially newbes, thanks I learnt a lot from it

    Reply
  44. pieter September 10, 2013 at 10:09 pm

    Thank You Nial, your article are very good education

    Reply
  45. Cyrus September 10, 2013 at 10:01 pm

    Nial!

    I am comfortable with my current $ risk per trade. However i realise now that i am not completely setting and forgetting my trades.

    I have a bloomberg App on my phone which keeps me up to date with price changes while at my day job. I also get updates on some economic news.

    I have just deleted this App henceforth because whatever happens with price i can’t change the market – it will do what it wants.

    Reply
  46. Jeremy DeFreitas September 10, 2013 at 10:00 pm

    Thanks Nial,That is a real eye opener.

    Reply
  47. bradipx September 10, 2013 at 9:49 pm

    excellent article!

    Reply
  48. Nick September 10, 2013 at 9:41 pm

    Hi Nial,
    Absolutely fantastic article. I agree entirely. You should risk basically what you are comfortable with and how much confidence you have in a particular trade set up.

    Nick

    Reply
  49. Mark Arnejo September 10, 2013 at 9:20 pm

    Very good read, thank you Nial!

    Reply
  50. Siyabonga September 10, 2013 at 9:18 pm

    Thank you Prof. for this article.

    Thank you for calling a spade, a spade and not a garden tool.

    Thanks once again Prof.

    Reply
  51. Henrique Araujo September 10, 2013 at 9:16 pm

    Hi Nial!

    You made solid points there but why would you say that brokers are interested in traders that lose money slowly (and eventually be out of the game for good, I say) instead of traders who win (either slowly or fast) and keep giving the brokers more spreads and commissions?

    Reply
    • Nial Fuller September 10, 2013 at 9:30 pm

      Brokers have a high churn rate on retail accounts

      Reply
  52. Recovering Loser September 10, 2013 at 9:16 pm

    I like this article!! :-))

    Reply
  53. sridhar September 10, 2013 at 9:08 pm

    Hi nial, i always read your articles with interest. the trading community is a mixed bag of traders with varied resources and knowledge..traders with sufficient knowledge and resources can risk much more than 2%….often times we read .” 95% of the traders lose money” and it has widely been accepted… taking the 2% risk as a discipline of trading, though it may not be right or true, the loss is limited to that extent. sure, when one has the confidence in his or her knowledge and has the resources they can rubbish the 2% theroy. 2% theory holds good for the 95%…

    Reply
  54. X September 10, 2013 at 8:58 pm

    Thanks !

    Reply

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