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Risk management is a crucial aspect of trading that helps traders protect their capital and minimize potential losses. One commonly used rule in risk management is the 2% rule. This rule suggests that a trader should not risk more than 2% of their trading capital on any single trade.

Here's how the 2% rule works:

Determine your total trading capital: This is the total amount of money you have set aside for trading.

Calculate 2% of your trading capital: Multiply your total trading capital by 0.02 to find out how much 2% of your capital is.

Set your stop-loss: Before entering a trade, determine where your stop-loss level will be. The stop-loss is the price at which you will exit the trade to limit your losses.

Calculate your position size: Divide the amount you are willing to risk (2% of your capital) by the difference between your entry price and stop-loss price. This will give you the number of units or shares you can buy or sell.

By adhering to the 2% rule, traders aim to protect their capital from significant losses and ensure that a series of losing trades does not wipe out their account. It's important to note that while risk management rules provide guidelines, traders should also consider other factors such as market conditions, volatility, and their own risk tolerance when making trading decisions. Additionally, risk management is just one component of a comprehensive trading plan, which may also include strategies for entry and exit, market analysis, and continuous learning and improvement.