Unit 2 · Level 2 · Risk Management
The 1% rule
The 1% rule: never risk more than 1% of your account on a single trade. Not '1% position size' but 1% RISK, meaning if your stop hits, you lose 1%. With this rule, even TEN losses in a row costs you under 10%. You live to learn.
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What this lesson covers
Risk decides size, not the other way around
The pro sequence: 1) Where's my stop? 2) How much is 1% of my account? 3) Size = risk ÷ distance-to-stop. If BTC is $100k and your stop is $95k (5% away), and 1% of your $10k account is $100 → position = $100 ÷ 5% = $2,000. The math does the sizing.
What you get asked
Account: $10,000. Following the 1% rule, what's the most a single stopped-out trade should cost?
1% of $10,000 = $100 max loss per trade. Simple, mechanical, life-saving.
Same $10k account, 1% rule. Your stop is only 2% below entry this time. What's your position size?
$100 risk ÷ 2% stop distance = $5,000. Tighter stop → bigger size, same risk. This is THE formula pros use daily.
Order the professional sizing process
Notice the position size arrives LAST. Beginners pick size first ('I'll put in $5k'), which is backwards.
The 1% rule, live: account €10,000, entry €50, stop-loss €45. How many shares can you buy?
Risk budget: 1% of €10,000 = €100. Risk per share: €50 − €45 = €5. Budget ÷ per-share risk: €100 ÷ €5 = 20 shares. This little formula IS position sizing.
True or false: the 1% rule caps your upside too much to ever grow an account.
You cap the downside, not the upside. A trade risking 1% can gain 3%, 5%, 10%. That asymmetry, repeated, is the entire business model of trading. 🐜
The rest of this unit
Position sizing, the 1% rule, risk:reward, and defeating your own brain. The unit that keeps accounts alive.