1% Rule
Risk Management
What it means
A simple risk rule: never risk more than 1% of your total account on a single trade. It keeps any one loss from doing real damage.
Example
On a $10,000 account, 1% is $100. If your stop is $5 below entry, you can buy 20 shares. Even 10 losing trades in a row leave you with $9,000 -- survivable.
Mistake beginners make
Beginners confuse "1% risk" with "1% of the position." Risking 1% means the loss if your stop is hit equals 1% of the account, not that the position size is 1% of the account.
Related terms
- Position Sizing — Deciding how many shares or contracts to trade based on how much you are willing to lose, …
- Risk-Reward Ratio — How much you risk on a trade compared to how much you aim to make. A 1:3 ratio means you r…