Never risk more than 1% of your capital on a single trade. It protects you from disaster when you are wrong.
What this rule is
The 1% Rule is a cap on what you may lose in a single trade: one percent of capital. Hit every stop in a row and you are still standing. It is not about position size but about the size of the loss if you are wrong: the position is derived from it, not the other way around.
The cold math
Ten losses in a row at 1% leave 90.4% of the account. Annoying, and recoverable. The same ten at 5% leave 59.9% and need a 67% gain just to get back. The math is lopsided: the hole is always deeper than the hill that fills it, and the rule stops you from digging deep holes in the first place.
Putting it into practice
Capital $20,000 → per-trade loss cap $200. A trade with a stop $2 per share → a hundred shares at most, and a stop $0.5 away → four hundred. Size adjusts automatically to each stop's distance, so the dose of risk is the same in every trade, whatever the stock.
Hypothetical example
Two traders with the same capital hit eight losses in a row (it happens to everyone). The one-percent trader lost 7.7% and kept to his plan. The five-percent trader lost 34% and slid into desperate decisions. The difference was not in their picks but in the dose.
Common mistake
Suspending it for “sure things”: the trade that “can't lose” is exactly where accounts get buried, because its size is outsized when it does lose. A rule with no exceptions, or no rule.
Where to see it on the platform
The trading journal calculates size from the risk percentage you set and warns you when you exceed it. The rule is built into the model, not left as a note in the margin.
