In lesson eight, we learned how to set stop-losses and take-profits, and said that we wait for a retest to confirm a genuine breakout. Today, we’ll move on to the most important lesson in the entire series.
You can master technical analysis 100% and still lose your entire account in a single trade. How? Because you neglected money management.
What is the golden 2% rule?
The rule$AAPLB is simple: never risk more than 2% of your total capital on a single trade.
Practical example:
If your capital is $100, the maximum loss you can allow is just $2.
If your capital is $1,000, the maximum loss is $20.
Why 2%? Because if you lose 10 trades in a row (which happens even to professionals), you will have lost only 20% of your account and will still be able to recover. But if you risk 20% on every trade, your account will be wiped out after just 5 losses.
How do you calculate position size?
Formula: Position size = risk amount ÷ (entry price - stop-loss price)
Example: You plan to buy Bitcoin at 42,000, with a stop-loss at 41,500. Difference = 500
Your account is $1,000, and your risk (2%) is $20.
Position size = 20 ÷ 500 = 0.04 Bitcoin.
This way, even if your stop-loss is triggered, you lose only $20.
Bottom line: A stop-loss protects your trade, but money management protects your entire account.
Today's assignment: Before entering any trade, calculate: How much will I lose if it fails? Is it less than 2%?
Join me for lesson ten: Trading psychology — how to deal with fear and greed.
#Trading_Education #Trading_From_Scratch #Money_Management #BINANCEACADEMY. $AAPLB