What is the 2% rule and the 1% rule in trading?

What is the 2% rule in trading? The 2% rule in trading is a money management principle that suggests limiting the amount of capital at risk in any single trade to 2% or less of your total trading account. The idea behind the 2% rule is to help traders protect their capital by limiting their exposure to potential losses. The 2% rule is a conservative approach to risk management and helps traders avoid over-leveraging their account and taking on excessive risk. By limiting their risk on each trade to 2% or less, traders are better able to weather the ups and downs of the market and stay in the game over the long term. In practice, the 2% rule means that if a trader has a $10,000 trading account, they should not risk more than $200 on any single trade. This includes both their entry price and stop-loss order. If the trade goes against them, the most they would lose is $200. It's important to note that the 2% rule is just a guideline, and some traders may choose to risk more or less depending on their individual risk tolerance and trading strategy. However, the principle of limiting risk to a manageable level remains a key aspect of successful trading. What is the 1% rule in trading? The 1% rule in trading is a money management principle that suggests limiting the amount of capital at risk in any single trade to 1% or less of your total trading account. The idea behind the 1% rule is to help traders protect their capital by limiting their exposure to potential losses. The 1% rule is a conservative approach to risk management and helps traders avoid over-leveraging their account and taking on excessive risk. By limiting their risk on each trade to 1% or less, traders are better able to weather the ups and downs of the market and stay in the game over the long term. In practice, the 1% rule means that if a trader has a $10,000 trading account, they should not risk more than $100 on any single trade. This includes both their entry price and stop-loss order. If the trade goes against them, the most they would lose is $100. It's important to note that the 1% rule is just a guideline, and some traders may choose to risk more or less depending on their individual risk tolerance and trading strategy. However, the principle of limiting risk to a manageable level remains a key aspect of successful trading.