Twitter Feedback ; Improve your Trading with the 2% Rule

A big thank you to all who took the time to read my blog, Improve Your Trading with the 2% Rule, the response was phenomenal. I thought I'd give you some feedback to a question I received after I posted the article which I think is very important in expanding the learning process.

Nico Prinsloo posted this question to me;

@CadeTradeR @JustOneLap If 2% rule based on reduced balance after every stop, more than 50 losses needed to wipe out funds?

— Nico Prinsloo (@NicP) September 3, 2015

Nico is quite correct in saying this, if we were to exclude the costs of doing the trade and assume we were to reduce the amount of risk per trade every time the balance of our trading capital reduced then it would be pretty darn hard to wipe out our account.

I experimented with this yesterday by using 100 as a base number for trading capital then multiplying 0.98. The first answer you get is 98 and once again I multiplied by 0.98 until I reached 50 times and lone and behold the number wasn't anywhere close to zero. In fact because the process is extensive I took my fact finding mission into excel going as far as 350 times and still no zero.

But obviously that would be in a perfect world where trading would be costless, which it isn't. However what it does say is that minimising costs related to trading and implementing the 2 % rule is advantageous to your trading as it guards you against trading capital destruction.

Thank you to Nico for bringing this up as it's helped us expand our knowledge.