The 1% Rule: Why It Saves Trading Accounts
The simplest risk rule in trading, why it works, and how to calculate your position size in under a minute.
By Dave · · 5 min read
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Most new traders don’t blow up their accounts because their strategy is bad. They blow up because one or two losing trades were simply too big. The 1% rule fixes that.
What is the 1% rule?
Never risk more than 1% of your account on a single trade. On a $10,000 account, that means your maximum loss on any one trade is $100.
It sounds small. That’s the point.
Why it works
- You survive losing streaks. Ten losses in a row at 1% leaves you with about 90% of your account. At 10% per trade, you’d have about a third left.
- You can think clearly. When a single trade can’t hurt you badly, you stop making emotional decisions.
- Your edge gets time to play out. Any strategy needs a lot of trades before results reflect reality.
How to size a position
- Decide where your stop loss goes before you enter.
- Measure the distance from your entry to your stop.
- Divide your 1% dollar risk by that distance.
| Account | 1% risk | Stop distance | Position size |
|---|---|---|---|
| $10,000 | $100 | $2.00 per share | 50 shares |
| $25,000 | $250 | $0.50 per share | 500 shares |
The bottom line
Risk management is the one part of trading you fully control. Start here, and every other skill you build has room to work.
Educational content only, not financial advice. Trading involves risk of loss. See the full disclaimer.