2 posts tagged with "trading rules"

One rule. One number. One decision.

2%

That's all you need to know to protect your trading account.

Let me show you why this simple rule is the difference between survival and destruction.

What Is the 2% Rule?​

The 2% Rule: Never risk more than 2% of your account on a single trade.

That's it.

Not 3%. Not 5%. Not 10%.

2%.

The Math​

Account: ₹5,00,000
2% Risk: ₹10,000 per trade
Stop Loss: ₹50 away
Position Size: ₹10,000 ÷ ₹50 = 200 shares

If stopped out: Lose exactly ₹10,000 (2%)
Account remaining: ₹4,90,000 (98%)

Why 2%? Why Not More?​

The Survival Math​

Let's see what happens with different risk levels:

Scenario: 10-Loss Streak (happens to everyone)​

At 2% risk per trade:

• Loss 1: ₹5,00,000 → ₹4,90,000 (-2%)
• Loss 2: ₹4,90,000 → ₹4,80,200 (-2%)
• Loss 3: ₹4,80,200 → ₹4,70,596 (-2%)
• ...
• Loss 10: ₹4,08,000 → ₹3,99,840 (-2%)
• Total loss: 20%
• Account survives

At 5% risk per trade:

• Loss 1: ₹5,00,000 → ₹4,75,000 (-5%)
• Loss 2: ₹4,75,000 → ₹4,51,250 (-5%)
• Loss 3: ₹4,51,250 → ₹4,28,688 (-5%)
• ...
• Loss 10: ₹2,99,000 → ₹2,84,000 (-5%)
• Total loss: 43%
• Account damaged

At 10% risk per trade:

• Loss 1: ₹5,00,000 → ₹4,50,000 (-10%)
• Loss 2: ₹4,50,000 → ₹4,05,000 (-10%)
• Loss 3: ₹4,05,000 → ₹3,64,500 (-10%)
• ...
• Loss 10: ₹1,95,000 → ₹1,75,000 (-10%)
• Total loss: 65%
• Account devastated

The Recovery Math​

How much do you need to recover?

After 20% loss (2% rule):

• Need +25% to recover
• Achievable with good trading

After 43% loss (5% rule):

• Need +75% to recover
• Very difficult

After 65% loss (10% rule):

• Need +186% to recover
• Nearly impossible

The 2% rule keeps you in the game.

Real Examples​

Example 1: Equity Trading​

Setup:

• Account: ₹3,00,000
• Stock: RELIANCE
• Entry: ₹2,500
• Stop: ₹2,450 (₹50 away)

2% Calculation:

• Risk amount: ₹3,00,000 × 2% = ₹6,000
• Position size: ₹6,000 ÷ ₹50 = 120 shares
• Investment: 120 × ₹2,500 = ₹3,00,000
• Risk: 120 × ₹50 = ₹6,000 ✓

If stopped out: Lose ₹6,000 (exactly 2%)

Example 2: Options Trading​

Setup:

• Account: ₹5,00,000
• NIFTY 24500 CE @ ₹150
• Stop: ₹120 (₹30 away)
• Lot size: 50

2% Calculation:

• Risk amount: ₹5,00,000 × 2% = ₹10,000
• Position size: ₹10,000 ÷ (₹30 × 50) = 6.67 lots
• Round down: 6 lots
• Investment: 6 × 50 × ₹150 = ₹45,000
• Risk: 6 × 50 × ₹30 = ₹9,000 ✓

If stopped out: Lose ₹9,000 (1.8% - even safer)

Example 3: Futures Trading​

Setup:

• Account: ₹10,00,000
• NIFTY Futures @ 24,500
• Stop: 24,400 (100 points)
• Lot size: 50

2% Calculation:

• Risk amount: ₹10,00,000 × 2% = ₹20,000
• Position size: ₹20,000 ÷ (100 × 50) = 4 lots
• Investment: 4 × 50 × 24,500 = ₹49,00,000
• Margin required: ~₹2,45,000
• Risk: 4 × 50 × 100 = ₹20,000 ✓

If stopped out: Lose ₹20,000 (exactly 2%)

Common Objections to the 2% Rule​

Objection #1: "2% Is Too Small"​

"I need bigger positions to make money"

Reality check:

• 2% × 20 trades = 40% of account at risk
• If you win 60% of trades, you're profitable
• Compounding works over time

Example:

• Start: ₹5,00,000
• Win 60% of trades (2% each)
• After 100 trades: ₹8,50,000
• 70% growth with 2% risk

Objection #2: "I'm Confident This Will Work"​

"This trade is 100% sure"

Reality:

• No trade is 100% sure
• Even 80% probability trades lose 20% of time
• Confidence ≠ accuracy

Better approach:

• Trade with 2% risk
• If you're right, you make money
• If you're wrong, you survive

Objection #3: "I Need to Make Money Fast"​

"I can't wait for slow growth"

Reality:

• Fast money = Fast losses
• Slow money = Sustainable money
• Surviving > Thriving

Math:

• 2% risk: Survive losing streaks
• 10% risk: Blow up account
• Dead traders make 0%

Objection #4: "My Account Is Too Small"​

"₹50,000 account, 2% = ₹1,000, too small"

Solutions:

1. Build account first (paper trade)
2. Use 2% of larger amount (₹1,00,000 = ₹2,000)
3. Accept smaller positions (better than blowing up)

Remember: Small account + big risk = No account

Advanced: When to Use Less Than 2%​

Use 1% When:​

High volatility markets:

• VIX > 20
• Earnings season
• Major news events

Testing new strategies:

• First 20 trades
• Unfamiliar instruments
• Different timeframes

After losses:

• Recent losing streak
• Emotional state compromised
• Account drawdown > 10%

Use 0.5% When:​

Account < ₹1,00,000:

• Preserve capital
• Learn without risk
• Build confidence

Very volatile instruments:

• Penny stocks
• Cryptocurrency
• High-beta stocks

The 2% Rule in Practice​

Daily Implementation​

Before every trade:

1. Calculate 2% of account
2. Determine stop loss distance
3. Calculate position size
4. Verify: Risk ≤ 2%
5. Enter trade

Example checklist:

Account: ₹5,00,000
2% Risk: ₹10,000
Entry: ₹1,000
Stop: ₹980 (₹20 away)
Position Size: ₹10,000 ÷ ₹20 = 500 shares
Investment: 500 × ₹1,000 = ₹5,00,000
Risk: 500 × ₹20 = ₹10,000 ✓

Weekly Review​

Check:

• Did I follow 2% rule every trade?
• What was my average risk per trade?
• Any trades exceeded 2%?

If yes: Why? How to prevent?

Monthly Analysis​

Track:

• Total risk taken
• Number of 2%+ trades
• Correlation with losses

Goal: 100% adherence to 2% rule

Portfolio Heat: Multiple Positions​

The Problem​

You have 3 open positions:

• Position 1: 2% risk
• Position 2: 2% risk
• Position 3: 2% risk
• Total portfolio heat: 6%

This is acceptable.

The Danger Zone​

You have 5 open positions:

• Each: 2% risk
• Total portfolio heat: 10%

This is dangerous.

Safe Portfolio Heat Levels​

Rule: Keep total portfolio heat below 6-8%

The 2% Rule Calculator​

Formula​

Position Size = (Account Size × 2%) ÷ Stop Loss Distance

Example:
Account: ₹5,00,000
2% Risk: ₹10,000
Stop Distance: ₹50
Position Size: ₹10,000 ÷ ₹50 = 200 shares

TradeLyser Integration​

Auto-calculation:

1. Enter account size
2. Enter entry price
3. Enter stop price
4. TradeLyser calculates position size
5. Shows risk percentage
6. Alerts if > 2%

No math required. No errors possible.

Real Results: Before & After​

Trader A: No Risk Management​

Before 2% rule:

• Risk per trade: 5-10%
• Account: ₹5,00,000
• After 5 losses: ₹2,50,000 (-50%)
• Emotional state: Devastated
• Trading: Stopped

Trader B: With 2% Rule​

After implementing 2% rule:

• Risk per trade: 2%
• Account: ₹5,00,000
• After 5 losses: ₹4,50,000 (-10%)
• Emotional state: Calm
• Trading: Continued

Same strategy. Different risk management. Different outcome.

The Psychology of 2%​

Why It Works​

Small losses:

• Don't hurt emotionally
• Don't affect confidence
• Don't trigger revenge trading
• Allow continued trading

Large losses:

• Devastate emotionally
• Destroy confidence
• Trigger revenge trading
• Stop trading

The Compound Effect​

Month 1: Follow 2% rule
Month 2: Still following (habit formed)
Month 3: Automatic (no thinking required)
Month 6: Different trader (disciplined)
Month 12: Profitable trader (survived to learn)

Common Mistakes​

Mistake #1: "Just This Once"​

"This trade is special, I'll risk 5%"

Problem: Once becomes always

Solution: Never exceed 2%. Ever.

Mistake #2: Moving Stops​

"I'll widen the stop to 3% risk"

Problem: Defeats the purpose

Solution: Set stop first, then calculate position

Mistake #3: Averaging Down​

"I'll add to losing position"

Problem: Increases risk beyond 2%

Solution: One position per trade

Mistake #4: No Stop Loss​

"I'll hold until it comes back"

Problem: Risk becomes unlimited

Solution: Always set stop before entry

The Bottom Line​

The 2% rule isn't about making money.

It's about staying alive.

You can't make money if you're not trading.

You can't trade if you blow up your account.

The 2% rule ensures you survive to trade another day.

Simple. Powerful. Essential.

Take Action Now​

Today:

1. Calculate 2% of your account
2. Write it down where you trade
3. Use it for your next trade

This Week:

1. Follow 2% rule for every trade
2. Track adherence (should be 100%)
3. Notice how losses feel smaller

This Month:

1. Review: Did I follow 2% rule?
2. Calculate: Money saved by small losses
3. Compare: Before vs after emotional state

👉 Use TradeLyser Position Size Calculator
👉 Download: 2% Rule Calculator
👉 Next: Breakout Trading in Indian Markets

Do you follow the 2% rule? What's your biggest risk management challenge? Share below.

The problem with trading rules:

You create them when you're calm.
You break them when you're emotional.

Why?

Because willpower fails under pressure.

The solution:

Don't rely on willpower. Use automation.

The Willpower Myth​

Scenario: Rule Without Automation​

Your rule: "Stop trading after 2 consecutive losses"

What happens:

Loss 1: -₹2,000 ("Bad luck, next one will work")
Loss 2: -₹2,500 ("I should stop... but let me try one more")
Rule broken
Loss 3: -₹5,000 ("Now I'm in trouble")

Why you broke it:

• Emotion overpowered logic
• "Just one more" seemed reasonable
• No physical barrier to prevent it

Scenario: Rule With Automation​

Your rule: "Stop trading after 2 consecutive losses" (automated)

What happens:

Loss 1: -₹2,000 (Alert: "1st loss")
Loss 2: -₹2,500 (Alert: "2nd loss - STOP TRADING")
Attempt Loss 3: BLOCKED "Max losses reached for today"

Why you followed it:

• Software enforced it
• No way to override (designed intentionally)
• Removed human decision

Result: -₹4,500 loss vs -₹12,000+ loss

What Are Automated Rules?​

Automated rules are pre-defined trading guidelines that:

✅ Monitor your trading in real-time
✅ Alert you when approaching limits
✅ Block actions that violate rules
✅ Track adherence automatically
✅ Generate compliance reports

Key difference from manual rules:

Manual: "I should follow this" (relies on discipline)
Automated: "System enforces this" (discipline built-in)

Types of Automated Rules​

Category 1: Risk Management Rules​

Rule: Maximum Risk Per Trade​

Setup:

• Max risk: 2% of account per trade
• Account: ₹5,00,000
• Max risk: ₹10,000

Automation:

IF position size × stop distance > ₹10,000
THEN alert "Exceeds 2% risk limit"
AND block order

Prevents: Oversized positions in emotional states

Rule: Maximum Portfolio Heat​

Setup:

• Max total risk across all open positions: 6%
• Account: ₹5,00,000
• Max heat: ₹30,000

Automation:

Current open positions risk: ₹28,000
New trade risk: ₹10,000
Total would be: ₹38,000 (7.6%)
ACTION: Block new trade
ALERT: "Portfolio heat limit exceeded"

Prevents: Over-exposure across multiple positions

Rule: Daily Loss Limit​

Setup:

• Max daily loss: ₹8,000

Automation:

Current P&L today: -₹7,500
User attempts new trade
ALERT: "Approaching daily loss limit"
If loss reaches -₹8,000:
BLOCK: All new trades for rest of day

Prevents: Revenge trading spirals

Category 2: Frequency Rules​

Rule: Maximum Trades Per Day​

Setup:

• Max trades: 3 per day

Automation:

Trades today: 2
User attempts 3rd trade: ALLOW + Alert "Last trade for today"
User attempts 4th trade: BLOCK "Max 3 trades per day reached"

Prevents: Overtrading and FOMO

Rule: Minimum Time Between Trades​

Setup:

• Wait 30 minutes between trades

Automation:

Last trade exit: 10:15 AM
User attempts trade: 10:30 AM
TIME CHECK: 15 minutes passed
BLOCK: "Wait 15 more minutes (minimum 30 min between trades)"

Prevents: Impulsive rapid-fire trading

Rule: Maximum Trades After Loss​

Setup:

• After a loss, maximum 1 more trade

Automation:

Last trade: Loss
Trades since loss: 0
User attempts trade: ALLOW + Alert "Last trade allowed after loss"
User attempts 2nd trade: BLOCK "Take a break after loss"

Prevents: Revenge trading

Category 3: Strategy Rules​

Rule: Only Trade Planned Setups​

Setup:

• Pre-market: Create watchlist of 5 stocks
• Only these are tradeable today

Automation:

Watchlist: RELIANCE, INFY, HDFC, TCS, ICICI
User attempts: WIPRO
BLOCK: "WIPRO not on today's watchlist"

Prevents: Random FOMO trades

Rule: Required Setup Criteria​

Setup:

• My A+ setup requires 5 conditions

Automation:

Checklist before entry:
☐ Above 50 EMA
☐ Volume > 1.5x avg
☐ Breakout pattern
☐ Market trending up
☐ R:R > 1:2

User attempts entry with 3/5 met:
ALERT: "Only 3 of 5 criteria met. Sure you want to proceed?"
User can override (with note) or cancel

Prevents: Trading B/C setups

Rule: Strategy-Market Match​

Setup:

• Strategy A: Only in trending markets (VIX < 15)
• Strategy B: Only in ranging markets (VIX 15-20)

Automation:

Current VIX: 22
User attempts Strategy A:
ALERT: "VIX too high for Strategy A (breakouts)"
SUGGEST: "Consider Strategy B (mean reversion) or wait"

Prevents: Strategy-condition mismatch

Category 4: Time-Based Rules​

Rule: No Trading in First 15 Minutes​

Setup:

• Wait until 9:30 AM to trade

Automation:

Current time: 9:22 AM
User attempts trade:
BLOCK: "Trading not allowed before 9:30 AM"
COUNTDOWN: "8 minutes remaining"

Prevents: Getting trapped in opening volatility

Rule: Close All by 3:00 PM​

Setup:

• All intraday positions must close by 3 PM

Automation:

Time: 2:55 PM
Open positions: 2
ALERT: "5 minutes to mandatory close time"
SUGGESTION: "Close RELIANCE and INFY now"

Time: 3:00 PM
IF positions still open:
AUTO-CLOSE at market price

Prevents: Holding past optimal time

Rule: No Trading on Specific Days​

Setup:

• No trading on Mondays (historically bad for me)
• No trading on result days

Automation:

Day: Monday
User attempts trade:
BLOCK: "No trading on Mondays per your rules"

Stock: RELIANCE
Result date: Today
BLOCK: "RELIANCE results today - per your rules"

Prevents: Trading in unfavorable conditions

Category 5: Emotional State Rules​

Rule: Pre-Trade Emotional Check​

Setup:

• Must rate emotional state before each trade
• Block if rating < 6 (too emotional)

Automation:

User attempts trade:
PROMPT: "Rate your emotional state (1-10)"
User enters: 4
BLOCK: "Emotional rating too low. Take a break."
LOG: "Blocked trade due to emotional state: 4/10"

Prevents: Trading while tilted

Rule: Break After Loss Streak​

Setup:

• After 2 losses, mandatory 24-hour break

Automation:

Losses today: 2
User attempts new trade:
BLOCK: "2 losses hit. Mandatory break until tomorrow 9:15 AM"
COUNTDOWN: "18 hours remaining"

Prevents: Emotional spiral

Category 6: Position Management Rules​

Rule: Mandatory Stop Loss​

Setup:

• Every trade must have stop loss set within 60 seconds

Automation:

Trade entered: 10:15:00 AM
Time: 10:15:45 AM (45 seconds)
ALERT: "Set stop loss now (15 seconds remaining)"

Time: 10:16:00 AM
IF no stop set:
AUTO-SET stop at -2% from entry
ALERT: "Auto-stop set at [price] (-2%)"

Prevents: Trading without stops

Rule: No Moving Stops Against You​

Setup:

• Can trail stops (in profit direction)
• Cannot widen stops (against you)

Automation:

Original stop: ₹2,450
Current price: ₹2,430 (in loss)
User attempts: Move stop to ₹2,400
BLOCK: "Cannot move stop against your position"
LOG: "Attempted to widen stop - blocked"

Prevents: Hope-based position management

Rule: Partial Profit Taking​

Setup:

• At +1R (first target), must book 50%

Automation:

Entry: ₹2,500
Stop: ₹2,450 (₹50 = 1R)
Target 1: ₹2,550 (+1R reached)
ALERT: "Target 1 reached. Book 50% per your rules"
PROMPT: "Sell 50% now? [Yes/Remind in 5 min]"

If ignored after 5 minutes:
AUTO-SELL 50% at market price

Prevents: Letting full winners turn into losers

How to Set Up Automated Rules in TradeLyser​

Step 1: Identify Your Core Rules​

From your trading journal/experience:

What rules do you break most often?

• After losses?
• When winning?
• When bored?
• When emotional?

Start with 3-5 most important rules.

Step 2: Navigate to Rules Section​

1. TradeLyser → Settings → Trading Rules
2. Click Create New Rule

Step 3: Configure Rule​

Rule Builder Interface:

Rule Name: [Max 3 Trades Per Day]

Rule Type: 
○ Risk Management
○ Frequency Control ← Selected
○ Strategy Requirement
○ Time-Based
○ Emotional Check

Condition:
"Number of trades today" [≥] [3]

Action:
☑ Block new trades
☑ Send alert
☐ Email notification
☐ SMS notification

Alert Message:
"Maximum 3 trades per day reached. No more trading today."

Override:
☐ Allow override with note
☑ No override allowed ← Strict enforcement

Active:
☑ Enabled

Step 4: Test Rule​

Paper trading mode:

1. Enable rule
2. Test with paper trades
3. Verify it works as expected
4. Adjust if needed

Step 5: Activate for Live Trading​

1. Review rule one more time
2. Set Active: Enabled
3. Start date: Tomorrow (or today)
4. Save

Rule is now enforcing!

Example Rules Library​

For Intraday Traders​

1. Max 3 trades per day
2. Stop after 2 losses
3. No trading before 9:30 AM
4. Close all by 3:00 PM
5. Max risk 1.5% per trade
6. Mandatory 30-min break between trades

For Swing Traders​

1. Max 5 open positions
2. Max risk 1% per trade
3. Portfolio heat < 5%
4. Every position must have stop loss
5. Hold positions minimum 2 days (no day-trading)
6. Review all positions before entry

For Options Traders​

1. Max 20% of capital in options
2. No naked selling (must have hedge)
3. Close all options 2 days before expiry
4. Max 3 open option positions
5. Mandatory Greeks check before entry
6. No trading on expiry day (if beginner)

For New Traders​

1. Max 2 trades per day
2. Max ₹5,000 risk per trade
3. Mandatory checklist before every trade
4. Emotional state must be > 6
5. Stop after first loss of day
6. Only trade watchlist stocks
7. No trading first 30 minutes

Real Results: Before & After Automation​

Case Study: Amit - Overtrader​

Before Automation (6 months):

• Trades per day: 8-12
• Win rate: 45%
• Biggest problem: Revenge trading
• Monthly P&L: +₹12K (barely profitable)
• Emotional state: Stressed

Rules Implemented:

1. Max 3 trades per day
2. Stop after 2 losses
3. 30-min break between trades
4. Daily loss limit: ₹6,000

After Automation (6 months):

• Trades per day: 2-3 (67% reduction)
• Win rate: 62% (selective = quality)
• Revenge trading: Impossible (blocked by software)
• Monthly P&L: +₹38K (3x improvement)
• Emotional state: Calm, in control

Amit's words: "The rules saved me from myself. I physically CAN'T revenge trade anymore. Best thing I ever did."

Advanced: Rule Combinations​

Rules can work together:

Combo #1: Streak Protection​

Rule A: After 2 wins, reduce position size 25%
  (Prevents overconfidence)

Rule B: After 2 losses, mandatory break
  (Prevents revenge trading)

Result: Protected from both extremes

Combo #2: Time & Risk​

Rule A: No trading after 2 PM
  (Your stats show you lose afternoon)

Rule B: If already in trade at 2 PM, exit by 2:30 PM
  (Minimize exposure)

Result: Time-based risk management

Combo #3: Ladder Risk Management​

Rule A: Position 1 = 2% risk
Rule B: Position 2 = 1.5% risk
Rule C: Position 3 = 1% risk
Rule D: No position 4 (max 3 positions)

Result: Decreasing size = safer

Common Questions​

Q: Won't rules prevent me from taking good opportunities?

A: They'll prevent you from taking bad "opportunities" that feel good in the moment. Your "good opportunities" should fit your rules.

Q: What if I want to override a rule?

A: Some rules allow override with mandatory note explaining why. Others are strict (no override). You choose when creating rule.

Q: Can I temporarily disable a rule?

A: Yes, but you must:

1. Provide reason (logged)
2. Set re-enable time
3. Confirm you understand risk

Q: What if market conditions change mid-day?

A: Rules can be time-based (e.g., "No Strategy A after 1 PM" is fine). Total disabling of core rules is not recommended.

Q: How many rules should I have?

A: Start with 3-5 core rules. Add more only if needed. Too many rules = complexity = failure to follow.

The Bottom Line​

Trading without automated rules:

• Relies on willpower
• Willpower fails under stress
• Discipline breaks
• Account suffers

Trading with automated rules:

• Relies on systems
• Systems don't fail
• Discipline enforced
• Account protected

You wouldn't drive without brakes.
Don't trade without automated rules.

Take Action Now​

Today:

1. List your 3 most-broken rules
2. Set them up as automated rules in TradeLyser
3. Test in paper trading

This Week:

1. Trade with rules active
2. Journal when rules prevented mistakes
3. Calculate money saved by automation

This Month:

1. Review rule adherence (should be 95%+)
2. Add 2-3 more rules based on data
3. Compare results: before vs after automation

👉 Set Up Automated Rules in TradeLyser
👉 Download: Rule Templates Library
👉 Next: How to Import 5 Years of Historical Trades

What trading rule do you break most often? Share below.