2% stop loss rule?

[tomorton]

The 2 percent rule is a basic principal of risk management. Even if the odds are stacked in your favor,it is not advisable to risk a large part of your capital on a single trade.
How to apply 2 percent rule :

• Calculate 2% of your trading capital i.e. capital at risk.
• Deduct brokerage on buy and sell to reach at maximum permissible risk.
• Calculate risk per share – Deduct your stop loss from the buy price and add a provision of slippage. For a short trade,the procedure is reversed that is deduct the buy price from the stop loss before adding slippage.
• Then maximum no. Shares is then calculated by dividing your maximum permissible risk by risk per share.

Good summary. You might have given credit to Alex Elder.

I'm currently on 1.5% account capital risk per trade. I have been as high as 5% in special situations. I hope to one day be making enough money sufficiently consistently that I can (safely) escape the tyranny of the 2% rule.

 

[indicator777]

Here is an interesting article from a well-known quant.

The 2% Position Risk Rule: Facts and Fiction

 

[Amber_0302]

Here is an interesting article from a well-known quant.

The 2% Position Risk Rule: Facts and Fiction

thanks for the article. good information

 

[Saxio]

Here is an interesting article from a well-known quant.

The 2% Position Risk Rule: Facts and Fiction

Yes,good stuff !

 

[easymon1]

Here is an interesting article from a well-known quant.

The 2% Position Risk Rule: Facts and Fiction

Conclusion
The 2% rule, or any x% rule of this sort, applies to frequent trading at low cost where the effect of a reduction in expectation due to position sizing is counterbalanced by an increase in frequency of trades.

The 2% (or X%) rule can be used with

• Medium frequency trading (scalping, intraday, short-term)
• Strategies with well-defined stop-loss levels
• Multiple open positions in different markets (portfolio heat control)

The 2% (or X%) rule cannot be used with

• Most mean-reversion strategies
• Medium to longer-term trend-following
• Strategies that do not use stop-loss

Alternative schemes for controlling risk when the rule does not apply must be used as mentioned above including but not limited to varying the strategy allocation accordingly.

 

[murray t turtle]

I read 2% capital (account size) stop loss per trade is the "sweet spot" for most traders. Does anyone run it tighter or looser here? If so, what % capital stop loss do you use?

%%
Easy to beat 2%, by keeping some capital in a local bank.
As far as one trade goes ;
IBD guideline of risk 7or 8 % max to make 24% makes much more sense.[NOT a prediction + that's for one trade/risking 2% for the stuff[one trade] i trade /invest in would be a waste time+ money.....................................................................................................]
[And leverage stuff is much different from cash markets/not just a matter of math adjustments/edit]

 

[George Orwell]

depends on yo budget

 

[Jaagup]

depends on yo budget

Actually right!

 

[dorcaslugo]

It’s all got to do with the risk appetite you got, some people can be more daring if they have a large capital to play around with.

 

[nursebee]

IBD used to advocate 7-8% stop loss.
2% is too much for me for what I get into.

I prefer something along the lines of a volatility based stop as described in turtle based crap.
https://www.tradingsetupsreview.com/ultimate-guide-volatility-stop-losses/
https://www.investopedia.com/articles/trading/09/volatility-stops.asp

Go read the turtle books for more. I think VanTharp might go into this a bit.

I don't understand or use Kelly Criterion but think my post and the post that talks about it are the only posts worth paying attention to here.