Whenever you are trading, remember a simple logic: never let the risk go beyond 2%. This is indeed the most violated rule that pushes traders to loss their money. A lot of books are written on the failure stories of the traders that some lost their one year of profit, and some lost five years of profit just because of small faults. There are few reasons, which will tell you never to go beyond 2% loss. Regardless of the outcome of your trading event, never go too far away because it will drag you towards the loss.
Swinging for the fences
Traders begin their carrier either with or without their consent, but the objective is to make money as much as they can once so that they can live the rest of their life with ease. In the forex world, this fantasy is derived by some of those people who didn’t get anything from here. No doubt, forex world brings unlimited income, but if you go too fast you will soon find yourself on the losing side. Here luck works but only when it is being used with the logic.
Let us see how things quickly change in the forex world. Just imagine you begin trading with the initial amount of $1000. Suddenly, if you bear a loss of 50%, that will shrink your capital to $500. Now if you want to reach breakeven, you will have to earn 100% of your current capital or $500 in simple words. Similarly, if you bear a loss of 75%, then you will have to earn around 400% of your current capital to reach breakeven, which is just impossible to do. This way very soon you will be in a position where you will have to shut your account forever.
Why the 2% rule?
As stated earlier, the best way to avoid going into the situation of loss is to act wisely and move logically. This is the reason why 2% rule was introduced in the forex market. 2% loss means that if you even come across 10 back to back defeats still you will only loss just 20% of your capital. If you trade too badly and this situation goes on for another 20 back to back defeats, the total loss would still be only 60% of your capital. Although you might say it is the still not favorable situation, still it is a lot better than a situation where you bear up to 400% of loss.
In the forex world, the goal isn’t just winning, but it is also about how to control loss. Winning may be a difficult and time taking position but loss can just come in a sudden. By countering the losses, you will be able to hold your ground in the toughest moment. This is just like you do something in your real-world business. Once you know how to control loss and stand on your position, you can then elevate when the right moment will come.