Choosing which limit to play is a critical element when playing poker.
Generally, you should choose which limit to play based on your financial
situation, your poker ability, and your aversion to risk.
No matter how wealthy you are, it is often best to start out at the
lower limits simply because the competition there is easier. Few
'professionals' play at the $1-2 games, so it is a relatively safe place
to begin one's poker career. Even if you are a billionaire, no one will
know it when you play on the internet and think any less of you for
playing at a low limit.
When choosing a limit, the major choices come when one decides to move
up a limit or down a limit. Do not choose a limit so high that it makes
you scared to play. Playing scared is a guaranteed recipe for losing.
It is also not wise to 'go for it' at a higher limit. If you are making a
run for it at a higher limit, you probably do not have the bankroll to
survive there for long. Even if you win on two straight sessions, you
will likely bust out and have to move down if you are not bankrolled
enough at any given limit.
If you take a hit at a higher limit, you should generally move down.
However, you shouldn't move down so far that you are totally unmotivated
to play. If you move up to $25-50 from $10-20, you shouldn't fall back
to $1-2 once you decide that $25-50 is too high. While people tend to
play too scared at a higher limit, they also tend to play too loose at a
lower limit. Play a limit that motivates you to play, but also at which
that you are not scared to play.