i have a question if my total risk lets say is 2% of ma initial capital what should my stoploss be? coz im confused between risk management and stoploss could someone please explain..thank u
Your stop-loss should be equal to your risk percent. If you risk 2% per trade, this means that your stop-loss, if triggered, is equal to 2% of account funds. This risk percent has nothing to do with the amount of capital you trade. That is, it is not the maximum funds you commit to a trade, but rather, the maximum funds you are prepared to risk (lose) per trade.
Say you have $1,000 capital. Your risk percent is 2% or $20 on $1,000 capital. This means that your stop-loss should not exceed $20 in order to meet the 2% capital rule. Now, suppose the difference between your entry price and nearest support/resistance is, say, 50 pips and each pip is worth 10-cents (micro contract). If you place your stop at nearest support/resistance, you risk 50 pips, or $5.00 in this example. If you now divide $20 by $5 you come out with a factor of 4, which is the total number of contracts you could trade in this instance without exceeding the 2% rule.
Hence, the capital risk factor determines the number of lots that can be traded on a given trade set-up. In the example above, if the stop-loss was 100 pips ($10) then maximum lots is 2, but if the stop-loss is 20 pips ($2.00), the maximum lots increase to 10 in this case.