The way I apply the 2% of capital rule is to set my stop at 2% below my buying price of a particular share. I may invest 100% of my total capital in a share (not really but by way of example. SO if I buy a share at say $1.00, my stop would be set at 98c. Alternatively, using my $2 000 rule as set out previously, I may set my stop at 95c or even 90c, and adjust my total purchase of the share accordingly to eg $2 000/($1-95c)=$40 000. In this way I can invest $40 000 but lose a max of $2 000. This may mean that I lose more than 2% of my investment (5% in this case), but allows me to make the investment in any case. Even though the $2 000 is a loss of greater than 2% usually used, it allows me to make trades on more volatile and risky shares. I arrived at the $2 000 using quite a convoluted thought process and basically it boils down to the fact that in most cases it allows me to invest up to $40 000 on a trade, yet it still represnets a small % in the overall averages of my trades as well as of my total capital.
