The REAL Reasons for 2% Risk Management Trading Rule
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- Опубликовано: 22 май 2024
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Traders know not to risk more than 2% on each trade but aren't given good enough reasons for this risk management rule. We'll explain the numbers, the psychology and more.
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TRADING RISK MANAGEMENT:
In this video, we discuss a common risk and money management rule that you should never risk more than 2% for each trade. Lots of traders follow this rule but it seems many don't know exactly why. The most common explanations fall short and just mention it's for capital protection, but we think there are deeper reasons. We'll take a look at the numbers side, the psychological aspects and the neurological aspects.
#Trading #RiskManagement #Risk
Consistency and small steps; those are the keys. For my first two years of trading I didn't risk more than $250 per trade. My average win was only a few dollars. Some of my trading buddies made fun of me for it. And it was hard seeing them make a few hundred or even a couple thousand on a trade when I only pulled in $7. But in the long run it pays off. They haven't done so hot overall... whereas I'm now able to slowly scale up to larger position sizes on the basis of an established routine that nets me more wins than losses. Patience pays off.
sure, patience pays off, but silence makes everything faster. the more you tell your friend about how much you earn, the more they make fun of you, the more stress you get, the slower you grow
You were risking 250 to make 7?
@@TrojanFTQno. I said average.
Agreed !
@@lonesurvivor815 Dont show off, great!!!
this is my life story, made 140K trading in 7 months, then had 1/2 losses , increased leverage lose more, risked more and then lost everything in 3-4 weeks
o(
Legendary
Thats insane.how much was you initial deposit?
@ocean west thanks for sharing hopefully in 3-4 years when i'm able to make 140k in 7 months I won't make your mistake...
@@Trendlines_mc yea dont get greedy and you will win , just try be consistent with decent wins , instead on trying to get home runs.
I risk 1% per trade initially but continue to load it up or buy into my trade as it goes in my favor. US30 is my baby and is making me richer by the day
What is your strategy
@@briancheruiyot4338 I stick to entering the market on a break of structure with a 3 leg extension and scale in heavy if it goes in my favor and ride the wave until it reaches a major reversal zone and I see bearish/bullish pressure begin to form. I risk 1% at a time. I enter on the 1 minute chart but look at the 1h and 6H for direction
@@PayMe888 Thanks alot
i am beginner so i am still learning
@@briancheruiyot4338 devote your entire will power to master trading (preferably 1 pair), do not scatter your energies, and refuse to submit to failure. Good luck bro.
Thanks I'll come back strong
To be honest this is the most underrated channel I have ever seen in my life. You are a truly Gem Nicholas
Thank you for all of your hard work and all of these great videos.
Agree!!
@Dominator 2911 Yeah it's sad to see.
Mastering Risk management reminds me of overcoming addiction, it is quite the journey. Good luck traders you can do this!
Same here. Trying to master risk management, I am having flashbacks, because I know I've already been here. However, I think my past is in this case going to be benificial. I don't have to make the same mistakes as I have in the past anymore.
Loved it. So informative on so many levels! Thank you kindly ! Articulate English accent & witty humour a happy bonus :-)
Great video like always.... Thanks a lot for the analysis.
This is a very high quality video. Great work
So, I’ve been a lurker on your channel for a while, I’m a Betfair Exchange sports trader on the football markets (newbie) and although you are not involved with that, I can relate to so many of your videos. This is one of them! Thank you! Keep up the psychological content :-)
My strategy is buying at the top of market and watching it go down. Then selling at the bottom of the market and watching it go up.
🤑🤑🤑🤑
@@b89976 It works like a charm
Woah can I use this strategy too bro ?
@@robertphillips292 Feel free, but it's going to take years and years of practice to perfect it. 👍🏿
Story of my life!
wooow i needed this ! thank you !!
Great video! Thank you!
Thanks - great video and explanation
How come I just now came accros your channel. It seems like one needs to cross the sea of bro science trading channels before reaching the actual good content on RUclips. Subscribed!!
I risk 2% on every trade and I scale out 50%, 30% and 20% of the position at my 3 respective profit taking zones.
Nice strategy, what zoes? 1R, 2R, 3R?
@@dedjene most likely
Brilliant ! Really loved the video. We are capped at 2% per week and we take trades for 2 weeks at any given time. Entries are staggered to ensure max risk is reached when all our entries are triggered.
Great Video! For sure i will check the Dinamic Position! I already loose 50% of account due to negligence, however from now i will use 1-2% risk management
Excellent video thank you very much
you explained reason why i trade with a negative risk:reward ratio. it allows me to actually have a win rate closer to 70% and avoid drawdowns. and i don't have to worry about hitting home run trades.
This is honestly a great video thanks for taking your time to talk about this
Thanks so much!
~ Nicholas
best video i have seen about risk
Pure value content thank you a lot🙏
You're welcome! Thanks for watching.
- Nicholas
Excellent advice. All of it.
This is the video that every trader should watch.... because of this 2% rule i have been growing my account without any fear of blowing my account
Great video ... definitely learned a lot from you over the years ...... funny thing is you can risk 10% with no problem if you spread your trade into grid layers that cover a wide area ... especially if you wait for extreme oversold conditions first before buying with a wide grid layer below......just passed a prop firm evaluation phase 1 and got 7 more weeks to make 4% more in which is a walk in the park keep the video's coming bro .. great energy
Would you mind expanding upon what you mean?
Took a screen shot of your comment for future reference material to print out and go over. Still educating myself.
this is great video content. Thanks for sharing
I needed to see this video. I thought having 5 losses in a raw meant that trading isnt for me... Turns out it s normal. Im returning to the charts!!!
Don't give up bro
YT algorithm brought me here. This is gold!!!
Great work
Excellent video!
Finally! Real probability and statistics. Well done!
I risk 1% per trade currently and will be looking to bump it up to 2% shortly...
Risk management once the trade is open is also a huge benefit. My average loss on a trade is just under 0.5% even when risking 1% per trade. With an average reward of 1.91% when I win with a 62% strike rate.
I have ran my stats through a trading simulator I have on excel from a fellow trader and over 5,000 trades the maximum consecutive losses was around 9 in a row... but when paired with my risk management technique that is only about 4.5%... if I am able to implement my risk management technique on those losin positions which I am about 75% of the time.
Damn, those are really good stats. What markets do you trade in?
Have you a web site for that simulator? I’m looking for something I can use that calculates outcomes for risk and reward scenarios.
I agree, thanks
Thanks
GREAT VIDEO
Your videos are always insightful - I am still a new trader and have started doing your free Duomo Method intro training (my laptop got stolen and i'll wait until I've replaced it before I will continue again). This video resonates so much with my experience up to this point in my trading experience (started in June 2020) and have blown my account a few times already - mainly due to trying to catch up what I've lost. I look forward to learn more about the Duomo method.
One thing i learned over years that , Try to book 50% of half percent target rest 50% at 1% target this reduces my loss.
Hello. What? Can you explain this? I didn't understand, thank you
@@lauramccann18 I mean when you buy 100 quantity and when your target hit half percent try to exit 50 quantity in profit rest 50 quantity wait for hit higher target
30 seconds n and you deserve a thumbs up i was latterly just thinking something similar to your first statement
great video
Thanks nice info! One question. On a scale of -5 to + 15 ( RR 1:3) we as humans always intend to take entire -5 stop loss but when it comes to profit taking we don’t stay there till +15 & many times end up taking +5/+10 or even sometimes lesser than +5 by trailing sto losses thinking I should not lose this +5 to -5 which keeps our winning ratio intact but Net P&L not so fat or even red.
This is specifically why I use a trailing SL that changes dynamically based on if the price breaks-out or not.
If trend trading chart breakouts, with a max risk of 5 units, my SL will start at 5 units, and as the underlying rises 1 unit, my SL tightens by 1 unit.
By the time the underlying hits +3 units, my SL is trailing by 2 units - and it stays there.
This way, when the trade doesn’t break out and time is passing, we both conserve capital from loss, and incrementally remove the risk capital from exposure as the likelihood of the trade going our way decreases- but still can ride breakout run ups. (Or downs)
💙🔥EXCELLENT ADVICE 🔥💙
No stop loss. Position size according to expected portfolio volatility instead. If a stock is expected to move 10% to change trend, then you only use 10% of your capital. So instead of using stop loss, your portfolio risk is just 1%. Buy low sell high individual stocks. Buy the market return using futures, will let free a lot of capital for swing trading. Let compound interest working for you.
Without stoploss and market goes down you can lose 50% or 80%
many kids ignore risk and yolo their life savings on call options
Keeping small % Makes losses less and stress as well..
Slow is smooth, smooth is fast
@@playerzero2236 imagine how slow smooth and painful is on small accounts lol
@@slowmusic6544 thats what im thinking with my $3000 acc. If i were to only risk 2% or $60 even with leverage id be making so little that it would be pure pain and basically not worth my time or anyones time for that matter. I was thinking of risking 10% and decrease the % as the account grows.
@@KK001 are you interested in already losing your 3K account LOL if you're already confident and good in trading. Look for money first to trade with or go for very high risk to reward trades. They are more difficult to find and doesn't happen everytime. Takes a lot more research and patience. But if you want to gamble your 3K first, then it's okay
@Oluwadamilare Bakare well guess what happened lmao. Before that tho, i tripled my account in a month doing mostly said high probability trades. My mistake was becoming too comfortable with risking too much money and not knowing how to lose, so i just kept piling money on that one super unlucky trade resulting in a 90% loss. Winrate was over 90% tho tbf, so i guess the strategy is sound enough, but it's just my risk management and inpatience that's not good enough.
I started off on 2% when I began trading, but now I use between 0.5% and 0.75% per trade. I probably average about 4 trades per day, so can still have 2% risk on my account if they are running concurrently. In my experience, the psychology of trading has been the hardest part to deal with. I'm a lot better now, but still have to consciously refrain from doing something stupid! Have rules that you can't/don't break and you should be ok.... with the right strategy of course!
Kept it to 1% till date and it has worked pretty good for me.....
Thank you for this explanation. I hear traders giving advice on taking about 1% risk per trade without telling the why and I saw that as a too much conservative move. (I was thinking 5% risk would give me around 20 runs wich is practically impossible to hit so I'll be fine). I totally forgot that with such a risk, 5 loosing streak will eat up almost 1/4th of my capital leaving my in a desperate situation emotionally and financially!
Initially I thought the same thing 1 percent was too small I even wanted to flirt with 5 percent, but I learn that it’s better to not gain than lose, to have the capital available when opportunity come to take advantage. A few months ago Tesla hit 666$ per share I didn’t have the capital and I knew it would rose up to 900$ or even 1122$ dollars, I was not able to purchase due to lack of capital.
That broscience guy is hilarious, i've got a reps for jesus muscle shirt myself haha
Does this apply to same-stock trades, too, even if I am long-term holding? If I long stock A and I decide to buy additional positions every 2 weeks, would those be "individual" trades that ought to meet the 2% rule?
Technical analysis and risk management is the same everywhere FX,stocks, crypto, indices etc
The most important Trading video on RUclips!
Would you mind to explain how do you calculate number and probability of streak depending on numbers of trades per year and win rate. Can you share the math please.
soliddd. 🤟🏾✨
I have made every mistake possible. This gives me encouragement.
Brilliant explanation of a rule that most of us follow blindly.... Thank you!
Good info. Keep it a little short if possible. Otherwise great resource.
Worst trading experience: I started doing swing paper trades about a month ago and had very favorable results for three straight weeks. Then, this past week nothing went right. The peak came when the market dropped on Wednesday, and everything took a dive. "Okay, the beginning of a bear winter, take short positions." Thursday, everything went back up. I will try to go back to normal for next week, but it kind of feels like I am taking haymakers from a prizefighter.
This is probably the best video you've done mate. Nicely done! Kquick maffs 🤣
Thanks, glad you liked it!
~ Nicholas
I suggest risking 0.5% - 1% per trade. If you don't have enough capital to make enough money risking that then get funded and use the profits to slowly build your own trading account.
Great video. I have gone through everything you mentioned. I like how you explain it from a biological point of view. Truly great insight
You the best broh🤴💯
Don’t under estimate the power of Compounding 💪🏾
1-2% risk of your capital gives you a 0% risk of ruin. At the end of the day it all boils down to your winning percentage and average reward:risk. There are calculators online for it. As a rule of thumb, 1-2% risk is in the range most realistic edges will fall under. Risk of ruin is the likelyhood that you will blow up your account. If it’s not 0, then eventually in your career, you will blow up. It matters the most when you have a small account and can’t just refund.
My current strategy is such that I dont use a stop loss. But I close the trade before the end of each day.
I have been on it for nearly a year, so far ok. I have never had a single loss since I started 10 months ago.
N YES I use dynamic position sizing. I believe in playing a game where if you toss the coin and its head then I win and if it's a tail then you loose. Either way I win 😅
But I'm patient as I get only 1-2 trades a month😬
Basically speaking if I see free money lying I just go and pick it up and move on 😅
Please explain your strategy and coin tossing game
I don't go on 2% of the capital. I look at a sample size of 100/200/300 trades per year and I divide 5% of the trade by 100/200/300 trades per annum. That keeps my risk per annum what so may ever not more that 5% of my capital. And I look at not more that 12 to 16 % per annum. It works most of the time this way. Position size each trade well. Let the profits run.
I risk 3% on my personal account and 1% on my funded account witb abt a 75% win rate and its worked out so far
@Dave Kop stop trying to find something... He meant "about"
Yes i am following the 2% rule risk management is the best thing I’ve learned in trading ! I have a good accuracy setup but sometimes i have 2-3 consecutive losses but that’s nothing because i take only 2% risk trade my risk reward is good so i recover the losses ! When you trade with the trend less chances of loosing !
do u use 2% risk in Option Trading??
@@Nidhhn yes same in options too
@@Domiguy777 is it profitable in options?
@@Nidhhn it’s profitable everywhere bro just follow the rules strictly!
Hello, Nicholas. Always follow your content. Thanks so much. Very good. I have a question, you mention in the beggining of this video that there is some other video in which you talk about adapting the setup while the price moves, once we are in. What is the name of that video to look for it? Thanks so much.
I think it was this one - ruclips.net/video/S9ZB0d6xgd8/видео.html
@@hypergamy5901 thank you!
can i use the 2% rule on Options Trading aswell?
Excellent video - and you use a lavalier mic and not a huge blobby thing covering your face - I will follow your channel!!😀
Hi Nicholas, thanks again for a very educational video ;), I have a question to ask though. Let's say I have a balance of $10,000 in my account and I want to risk 2% of that, which is $200, and I end up losing that trade, which brings my balance to $9 800. Do I now then risk 2% of my new balance or continue risking $200? Please respond ASAP. Thank you.
Could do or adjust it on a week basis
I think u always take 2% risk. If your portfolio goes up u make more profit, if your portfolio goes down, u make same loss. Other wise if take fixed amount like £200 risk always the compounding will eat your portfolio quickly
@@shahrinalam6994 Si tiene 10.000 arriesga el 2% que son 200 usd y pierde en la operativa , tendrá 9800 de capital, Ahora si vuelve arriesgar el 2% ahora arriesgaría 196 usd por lo que tendria que ajustar el tamaño de su posicion o lotes
@@ArturoBalcazar13 can't understand what you saying.
Make sure you've good RR
I thought the chance of losing 5 trades in a row if your win rate is 50%, is 0.5 x 0.5 x 0.5 x 0.5 x 0.5 = 3,125% . Can you please help explain why in your video it’s 81.01% ?
i can't understand why he said 81.01%!
You’re calculating the probability of losing 5 trades in a row in the next 5 trades, not the probability of having a losing streak of 5 at some point in the next x trades (e.g. at some point in the next 1000 trades).
Position size is set of where I plan to put a stop loss
Sir I took risk of 10% on every trade....and I blow up my account just in 2 weeks....
If we have net drawdown limit of 6% then we have to be very choosy when it comes to managing our daily losses. Most of research data shows that when the loss exceeds 3%, there are 95% chances that the account will hit 6% limit. So this is a golden rule for me.
Before watching: Its a simple reason. The more you risk per trade the more likely you are to lose your account in a loss streak.
Me after: Ahhh its a psychology lesson for new traders
This is deep
Are you sure you numbers starting at 2:25 are correct?
What do you do when the $ crash?
Great vid, I'm risking .0035%.. bc I'm trading for a prop firm, and this allows me to take 3 L's w/ out hitting my daily loss limit
how is it possible to trade with 2% SL? my trades typically fluctuate abt 10% negative before going in my direction. This happens abt 70% of the time.
11:18 - so i guess thats why you should take a break when achieving big wins or losses? Right?
Super
I have a question:
With 70% Win Rate, there is 0,00059% of loosing 10 trades in a row.
Why would I risk only 2%, if I risk the same amount every time, or 10% of my total capital per trade, I am mostly safe.
Any thoughts?
You’re using the wrong calculation
Be careful not to put too much focus into percentages, risk reward ratios, and so forth. They're only part of the bigger picture. And don't look for that perfect system. There was a trader I once interacted with online who would say that all you need is a moving average. Didn't use stop losses or profit targets, didn't believe in trading psychology. He'd make huge gains time and again only to then blow it all in one day. He still insisted on trading this way. But he understands the risks and is willing to accept them.
It's better to Compound sometimes.
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In one of your videos you mentioned that you had created an academic paper when you worked with the team on your trading system, I was wondering if that is available to read? Thanks!
What do you think about the Kelly Criterion?
i risk 0.5 - 1% per trade but im agressive
Hi Dumo, quick question. Do you trade mostly Forex or Stocks?
6:28 ouch...
I stick to the ole´ 50% rule.
😳
Should i still risk 2 percent if only have a small acc like 300 dollars?
use 2.5*2 rule mean if you have 250 doller in trading acount you use 100 doller for trade and foe saftey u have 150 doller total 250 and * it with 2 and result come 500 doller it means u have tootal 500 doller in bank account to trade safe thnx
How much percent do you need to lose to call it a day ?
5% max , ftmo challenge
It’s all about discipline 😁
NOT EXACTLY
@@PrinceChauhan010 y not?
Discipline is an illusion if you don’t have rules on your own.
I just started and I already lost $100 using big lot sizes and in between I revenge traded and now I'm just feeling so terrible and down, $100 may not be a lot to many but for me it's a lot of money and I' shit scared going forward.
It seems most stocks are down like 5% before up like 7% or more… even I tried to buy bottom many times.. these stocks were easily down 2% or more and flied up like skyrocketing.. by the time ,, my stocks were sold already ..
I was holding my 75% profit because I was waiting for something special, so I lost almost all of my money 😭
I don't, xD
I've just started and felt that I don't need to set up ''stop loss''...
Then I started watching videos and was like: Umm, there might be something here...
So I went to check what is risk management... Didn't learn anything from here... So going to next video... Tho I still found it informative, even tho I don't feel like I need it rn...
But what if you only do two trades a month?
i see Dom Mazetti i click subscribe.