Golden Rule

Golden Rule

The other day, I read a book by a well-known person in the FX market, which interestingly discussed the Golden Rule of top investors. Therefore, I would like to share it with all my fellow traders. He said, "The best investors will never risk more than 2% of their capital on a single trade. And this is the formula for calculating the risk.

Risk = Lot Size * Stop Loss * PiP Value / Capital

The key is to calculate the lot size by controlling the risk at 2%, and when swapping the position of the formula to calculate the lot size, the formula will look like this:

Lot Size = Risk * Capital / Stop Loss * Pip Value

Let's look at an example: Funding account = 5000 USD, cut-loss level is 35 Pips with a risk ratio of 2%, and lot size is equal to

Lots size = 0.02 * 5000 / 35 * 10 = 0.29 Lots

This is the standard formula for entering the market. with the cut-loss level But when the current price is close to the stop-loss level, the number of pips has to decrease. Let's say that the distance between the price and the stop-loss level is 20 pips. Let's calculate how much risk is left.

Risk = 0.29 * 20 *10 / 5000 = .0116 or 1.16%

Cr : Mario Singh