Equity is more important than position

Positions was King

In my early trading life, I thought positions were very important.

How can you make profit if you don’t take sides and have positions?

I was wrong. I busted several forex, futures, stock derivatives accounts (options, warrants, CBBC) in a row with this mindset.

When I opened the first position and market moved against me, I added more positions because “price is cheaper, it’s sweet”.

I added more positions when the market was against me
How I busted my accounts.

The market usually returned to my view, only after I have margin calls. I have hit many margin calls because of high leverages.

It was deadly frustrating.

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People Recommend the 2% Rule on Equity

[su_quote cite=”Investopia” url=”https://www.investopedia.com/terms/t/two-percent-rule.asp#ixzz5NKCzkkI8 “]The 2% rule is a money management strategy where an investor risks no more than 2% of available capital on a single trade. [/su_quote]

Initially I thought it is a joke, a lie to retail trader like me. After busting so many accounts, there is a need for me to think about the 2% rule seriously.

Risking 2% of your equity but you are looking at a 3:1 reward ratio, that’s 6%. I thought it was too little. (I think it is still too little).

Don’t you think so?



Equity in Trading Equals to Your Life in Living

This is my current mindset.

Equity is the only measurement of trading success. It is not trend forecast, time prediction, or price target accuracy.

Equity is a measure of how you actually trade.
If you over-leverage or over-trade, your drawdown will be very deep and quick. You hardly survive in one mistake.

This is why people recommend the 2% rule.


My version of 2% rule (Equity control rule)

I believe the 2% rule is more for a fund mananger or trader with deeper pockets. I am a very small retail trader. My trading aim is to grow my tiny account to a medium account, and to a large account.

I now use a lower leverage (around 50X Leverage, or less) and I now look for quality trades in a month. I get a stand of the market and set Stop Orders.

For example, in this trading idea: AUDUSD, August/6-10, Daily. Awaiting a drop to confirm breakout to the downside.

The market is in sideway. Entering the market at this situation with Large leverage will burn yourself. Rather, I am now waiting for a trigger (0.7325) at the breakout zone to confirm my view (sell AUDUSD).

Looking for a better quality trade
I now look for better quality trades

With a lowered leverage, it gives me more room for Stop Loss and see how the market reacts. In this case, the SL is at 0.7400.

At this level, I think the downtrend is gone and the market is overall neutral. There is no reason for my sell orders to be  kept open when market is not in a sell-tone.

I don’t follow the 2% rule but I feel much more comfortable setting trades with this method. Although I am still trying to increase my trading profitability, I am getting calm during volatility periods like the release of Non-farm payroll. My orders will get me in when the market aligns with my view.

Once I am in-sync with the market, I have much higher chance to make stable profits.