For any newbies out there who are reading this, please note that this part of the post is misguided at best. The 2% rule as it relates to liquid net worth is likely the only rule in trading that does not need context. If any newbies have any questions, feel free to write here or PM me and I'll be glad to help.
It's not misguided, it's a testament to the fact that risk is more complex than some arbitratry percentage of account value... whatever that value may be. For any non-newbies that understand this, please feel free to PM me or continue with the discussion here, because it definitely is a topic that needs context. I agree though, any newbies wanting to get schooled on the 2% rule, should please contact b1s2.
There are perhaps complexities in trading (although not many), but there is no complexity in the value of one's liquid net worth. Once a trade has lost 2 percent of your liquid net worth, you have 2 percent less in liquid assets. If you feel that you should still be in a trade once you have hit 2 percent, then it will only be a matter of time before you remove yourself from the market. The market does not blow accounts, traders do. Trades that run against you 2 percent are running in favor of well capitalized traders who are most willing to let their profits run against you much farther than 2 percent. The argument against the 2 percent rule is indefensible.
Oh really? Opportunity cost is the most misunderstood word I have ever seen. It assumes you could have made a better trade or additional trades in lieu of what you actually did. That assumption totally depends on whether your analysis was correct to begin with. I don't assume all of my trades will be good, to do so is even more arrogant. I don't play monday morning quarterback. Yes I know his EDGE ALWAYS WORKS. All infallable systems are the cats meow all the way up until they fail. Gee, what a concept. A business with competition that is not fierce. When you find that business please let me know and I will invest in it. Business and trading both have fierce competition. Whereever there is money to be made you better believe there is fierce competition. Neither is worse in that regard. Dang, you wouldn't happen to have any statistics on that would you? All these years in business while not being fully leveraged. I feel guilty having the money I earned now. I should have gone out of business, but I failed in that regard. I must be the luckiest guy on the face of the planet. Yes it is my only profitable hobby. I'm sure there are many people on this board that don't trade for a living. I'm also sure there are many trying to trade for a living and failing. The person who started this thread IS NOT TRADING FOR A LIVING. She was looking for basic ideas on position sizing. I doubt she is prepared for Mike's plan at this time. This is about penis size, nothing else. All he had to say was "I am of the belief that if you trade this way you will ultimately lose" Instead he said he had a loser's mentality. In other words, there is no way you can be a good trader with that philosophy. How would good old Mike know this? Again, pure arrogance. There are many ways to make money in the market. I have never pretended to be a day trader in this forum. This forum is not a day trading only forum. I have never said I was an elite or self-proclaimed expert. I do have a reasonably good business sense. Business is business whether trading or not. I have been in my industry for 36 years. I know my stuff, but I am not arrogant enough to think I cannot learn something new. I learn something new every day. I know when I want to teach something to someone, I don't call them a loser. I try to make them think. Some great ideas have come out of the mouth of babes who didn't have a clue. Sorry, but this wasn't a teaching lesson. This was more like I am woman, here me roar.
Trading is "perhaps complex"? "Indefensible", eh? Ok, how about this one: You decide to take a long position in a stock that is uptrending. Your account value is 100k, the stock price is $100. Your stop is .20. With B1S2's indefensible 2% rule, that leaves you with a cool 1k share position. This is a very illiquid and volatile stock. Average trade size is 1-200 shares. The market quickly gets to your stop and spreads .40, turning your 2% stop into a 4% stop. You market out and move the stock another .05 - .1 adding another 1%. Bringing your total realized loss to -5%. Was this a wise position sizing strategy? Did you underestimate other factors besides your account value, like say: the actual market you're trading. Does it need to be discussed in a context? Me thinks so. So please spare the trading cliches.
One more question for ya, if you don't mind onelot. If being fully leveraged is the only way for a business to make it in this tough world it would seem to me that we should only invest in companies that are highly leveraged. I wonder why the complete opposite is true. Can you please answer that?
For any newbies here, the premise of this is wrong. If your account value is 100k, you would not commit the full 100k to this one trade/idea. The maximum that you would commit is 10k. The stop would then be at $80 per share. Certainly by the time the stock lost $20 dollars per share , you would be able to admit that the trade was wrong and get out. Secondly, it makes no sense to trade an instrument that is illiquid. In summary, the premise of this violates other rules before we even get to the 2 percent rule. Just getting into this instrument is the beginning of the road to disaster and can be classified as gambling. The 2 percent rule is and always will be the rule that must be followed to the letter.
I'm not going to go point by point with you holy. It's obvious you're being confrontational. Please do some research into why leverage is used in certain industries and why it isn't in others and you'll find a lot of your assertions or thoughts about it are only half true. I know a guy with an orange selling business down the street from me. He stands on the median. He's the only one for miles. Truly an entrepreneur. All cash business. I'm sure he'd take you up on your offer for investment.
I asked a legitimate question. Why not say you don't know the answer as opposed to saying I am being confrontational?
Hehe. I didn't answer the question because the premise of the question is illogical. Businesses can be cash based, and it's not necessarily a bad investment to invest in a company that is highly leveraged. I assumed you were being facetious, apparently not. Good luck to you holy.