The 1% Rule: How to Size a Trade

The idea behind the 1% rule

The 1% rule says that on any single trade you should risk no more than about 1% of your account if the stop-loss is hit. It is not a law. It is a guardrail that keeps one bad trade, or a run of them, from doing real damage. On a $10,000 account, 1% is $100. That is the most you plan to lose on the trade, not the amount you invest.

How the stop sets the size

Risk per trade is fixed, so the position size comes from the distance between your entry and your stop. Divide your dollar risk by the loss per share. With $100 of risk, an entry at $50 and a stop at $48, each share loses $2 if you are stopped out, so you buy 50 shares. Move the stop to $46 and the same $100 buys only 25. A wider stop does not mean more risk, it means fewer shares. Try it in the position size calculator.

Why small percentages matter

Losses compound against you. Ten losing trades in a row at 1% risk cost about 9.6% of the account. At 5% risk, ten losers cost about 40%, and winning that back takes a 67% gain. You cannot predict which trades will lose, so the only control you have is how much each one is allowed to cost. See the drawdown recovery calculator for the numbers behind that.

When traders bend the rule

Many traders use anywhere from 0.25% to 2%. Newer traders often stay at the low end while they learn how their strategy behaves. Traders with a long, tested track record may go higher on their best setups, and some size down after a losing streak. Whatever you choose, decide it before the trade and write it down in a journal.

What the rule does not cover

A stop is not a guarantee. Gaps, fast markets and thin liquidity can fill you worse than planned, so real losses can exceed the 1%. The rule also says nothing about whether a setup is any good. Pair it with a sensible reward-to-risk ratio, and test whether your strategy has an edge using the expectancy calculator. This guide is educational and not financial advice.