We should all know the 2% rule. Devised by Dr Alex Elder. Says capital risked per trade should be not more than 2% of your total account.
I have followed this rule and quoted it here and elsewhere. My own current trades are running at about 3% risk on average - I'm not a novice but still conservative and still trying to respect the rule. But we shouldn't give unquestioning faith to any rule in trading.
First off, this rule first appeared in print no less than 23 years ago in "Trading for a Living", by Dr Elder. His name started to become known in the late 80's. His trading obviously pre-dates the launch of his website in 1988. That passage of time on its own should qualify for this to be re-visited.
Dr Elder is a psychiatrist who trades. Nothing wrong with that, but he is bound to bring a psychological viewpoint to his writings. It's therefore very possible that the major benefits of following his teachings are protection from negative psychological impact, rather than wealth generation.
Dr Elder's knowledge and experience in trading are derived from the US private trader's viewpoint. This is not necessarily going to be universally reflected by traders' conditions in other countries.
His experience pre-dates the huge increase in private trading in the late 1990's. I don't say good trading rules should have come out of the frenzied daytrading of the tech bubble, those were atypical market conditions, but some things in the game have changed since then.
His experience was (I think) derived from going long on US stocks in the late stages of a decades-long bull stock market and US economic expansion. As far as the markets were concerned then, I'm sure the feeling was this was never going to end. But being a long-only one-country share-buyer probably doesn't count as trading as we now understand it. How relevant is buying shares in a bull market to trading both ways on the huge variety of other instruments we can now access?
Sorry if I've taken a swing at your personal guru, but I suspect those of us who know the rule also break it every trade. Don't you?
I have followed this rule and quoted it here and elsewhere. My own current trades are running at about 3% risk on average - I'm not a novice but still conservative and still trying to respect the rule. But we shouldn't give unquestioning faith to any rule in trading.
First off, this rule first appeared in print no less than 23 years ago in "Trading for a Living", by Dr Elder. His name started to become known in the late 80's. His trading obviously pre-dates the launch of his website in 1988. That passage of time on its own should qualify for this to be re-visited.
Dr Elder is a psychiatrist who trades. Nothing wrong with that, but he is bound to bring a psychological viewpoint to his writings. It's therefore very possible that the major benefits of following his teachings are protection from negative psychological impact, rather than wealth generation.
Dr Elder's knowledge and experience in trading are derived from the US private trader's viewpoint. This is not necessarily going to be universally reflected by traders' conditions in other countries.
His experience pre-dates the huge increase in private trading in the late 1990's. I don't say good trading rules should have come out of the frenzied daytrading of the tech bubble, those were atypical market conditions, but some things in the game have changed since then.
His experience was (I think) derived from going long on US stocks in the late stages of a decades-long bull stock market and US economic expansion. As far as the markets were concerned then, I'm sure the feeling was this was never going to end. But being a long-only one-country share-buyer probably doesn't count as trading as we now understand it. How relevant is buying shares in a bull market to trading both ways on the huge variety of other instruments we can now access?
Sorry if I've taken a swing at your personal guru, but I suspect those of us who know the rule also break it every trade. Don't you?
2% or not 2%
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