Elliott Wave Forecast Team
ElliottWave-Forecast.com
Risk meter, how much should you risk?
Risking 2% can quite literally save your trading account. By risking too much your trading can be at risk of large drawdowns. But why is this? We searched across the interweb and found several reasons to keep risk low:
Surviving losing streaks: Risking 2% per trade allows you to withstand a series of losses without depleting your account. For example, starting with $20,000: If you risk 10% per trade and lose 19 trades in a row, you would be left with only $3,002. Whereas risking 2% would leave you with $13,903, a 30% loss of your initial account.
Preventing large drawdowns
By capping risk at 2%, you can avoid significant account drawdowns, which can be devastating to your trading career. A 10% maximum drawdown limit, for instance, would require a much smaller account size to maintain the same level of risk.
Proper risk management
The 2% rule is a simple and effective way to manage risk, making it accessible to beginners. It’s a basic principle that can be applied to any trading strategy, regardless of market conditions or account size.
Avoiding over-trading
Risking too much per trade can lead to over-trading, which can exacerbate losses and increase the likelihood of account destruction. By limiting risk, you’re more likely to trade with discipline and avoid impulsive decisions.
Focus on trading skill improvement
As your trading skills improve, you can gradually increase your position size and risk percentage, allowing you to take advantage of better opportunities while still maintaining a safe and sustainable trading approach.
In summary, risking 2% per trade provides a balanced approach to risk management, allowing you to:
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Survive losing streaks.
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Prevent large drawdowns.
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Practice proper risk management.
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Avoid over-trading.
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Focus on improving your trading skills.
This approach is applied to any trading strategy and account size. Making it a versatile and effective principle for traders of all levels.
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Editors’ Picks
EUR/USD climbs to daily highs near 1.1820
EUR/USD now picks up pace and advances to the area of daily peaks north of the 1.1800 barrier at the end of the week. The pair’s decent move higher comes against the backdrop of a generalised lack of direction in the FX galaxy and the mild offered stance in the US Dollar.
GBP/USD trims losses, retests 1.3460
After briefly challenging its key 200-day SMA near 1.3440, GBP/USD now manages to regain some balance and revisit the 1.3460 zone on Friday. Cable’s pullback comes as the selling pressure on the Greenback gathers traction, reigniting some recovery in the risk-linked space.
Japanese Yen gives back half of early gains against USD ahead of US PPI data
The Japanese Yen (JPY) surrenders half of its early gains against the US Dollar (USD) during the European trading session on Friday. The USD/JPY pair rebounds to near 155.90 as the JPY falls back, but is still 0.15% down.
Editors’ Picks
EUR/USD: Fed calm, ECB steady, but the Dollar still leads Premium
EUR/USD is still struggling to find real traction. The pair has tried to stabilise, but momentum keeps fading, leaving the door open to further weakness.
Gold: Falling US yields, geopolitics help XAU/USD hold ground Premium
Gold (XAU/USD) gained traction and climbed above $5,200, ending the fourth consecutive week in positive territory. The next round of US-Iran talks and crucial macroeconomic data releases from the US will be watched closely by market participants in the short term.
GBP/USD: Will Pound Sterling defend key 1.3450 support ahead of US jobs data? Premium
The Pound Sterling (GBP) entered a bearish consolidation phase against the US Dollar (USD), after having tested critical support near the 1.3450 level on several occasions.
Bitcoin: Another month of losses, and it’s been five
Bitcoin (BTC) price is stabilizing around $68,000 at the time of writing on Friday, but the Crypto King is poised to close February on a fragile footing, marking its fifth consecutive month of losses since October and a rare start to the year with back-to-back monthly corrections.
US Dollar: At a crossroads; Fed steady, tariffs in flux Premium
The US Dollar’s (USD) upward momentum from the previous week seems to have encountered a tough nut to crack in the 98.00 region, as measured by the US Dollar Index (DXY).
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