The 1% rule
The single most important rule in this entire site: never risk more than 1% of your account on a single trade. If you have a $10,000 account, your maximum loss on any one position is $100. Period.
Why 1%? Because losing streaks happen. Even a 60% win-rate strategy will hit 5 losses in a row eventually. At 1% risk, that's a 5% drawdown — annoying but recoverable. At 5% risk, it's a 25% drawdown that takes a 33% gain to recover. At 10% risk, it's career-ending.
A 10% drawdown needs an 11% gain to recover. A 25% drawdown needs 33%. A 50% drawdown needs 100%. The deeper the hole, the harder it is to climb out — which is why the goal is never to dig the hole.
Stop-loss: the price you're wrong at
Every trade needs a stop. Not a "mental stop" — a real, pre-defined price where you exit, no matter what your feelings say at the time. The stop should be placed at a level that, if reached, proves your thesis wrong. Not a random percentage — a logical chart point.
- Long a bull flag? Stop just below the flag low.
- Long a support bounce? Stop just below the support zone.
- Short a double top? Stop just above the second peak.
If your stop is too tight, you get noise-stopped repeatedly. Too wide, you risk too much. The right distance is "just past the level that would invalidate the setup" — and you size your position to make that distance equal to your 1%.
Position sizing — the formula that ties it all together
Once you know your stop and your max risk, position size is just math:
Shares = (Account × Risk %) ÷ (Entry − Stop)
Example: $10,000 account, 1% risk = $100. Entry at $50, stop at $48. Distance is $2. Shares = $100 ÷ $2 = 50 shares. That position costs $2,500 to put on, but your max loss is only $100.
Notice that the dollar value of the trade is irrelevant. What matters is the dollar amount you're risking. Use the position sizer to do this in seconds — or read the full position sizing lesson.
Risk:reward — the second half of expectancy
Risk:reward (or R:R) is the ratio of how much you stand to lose vs. how much you stand to win. If your stop is $2 away and your target is $4 away, you have a 1:2 R:R — risking 1R to make 2R.
Most professional traders refuse trades below 1:2 and prefer 1:3 or better. Here's why it matters: at 1:2 R:R, you only need a 34% win rate to be profitable. At 1:3, you only need 26%. Bad math (1:1 R:R, 50% win rate) is a coin flip after fees.
Expectancy — the only number that matters
Expectancy tells you what an average trade is worth in your strategy:
Expectancy = (Win % × Avg Win) − (Loss % × Avg Loss)
If your expectancy is positive, you make money over time. If it's negative, no amount of "discipline" will save you — your strategy needs to change. Track every trade in a journal so you can compute this honestly.
Daily and weekly limits
Even with 1% per trade, a bad day can cascade. Set hard limits:
- Max 3 losing trades per day. Walk away. Tomorrow you'll see the chart fresh.
- Max 3% account loss per day. Hit it, you're done. No exceptions.
- Weekly limit of 6%. If you're down 6% on the week, take 2 days off and review your journal.
The behavioral piece
The 1% rule fails the moment you "make an exception." That's why the rule isn't really about money — it's about building the identity of a trader who doesn't break rules. Read the trading psychology lesson for how to actually do this.
Use our trading simulator to log real reps with the journal feature — every trade gets a 1–5 plan-adherence score. Over 50 trades you'll see your honest behavior, not your imagined behavior.