In trading, we tend to get obsessed about the perfect strategy, the one best perfect or accurate indicators, the next big market moving event. But what divides the 90% of traders who lose from the 10% who consistently profit is not strategy — it’s risk management.
At the very heart of risk management is perhaps one of the most potent and most underutilised concepts in trading:
The 1% Rule.
It’s a simple rule that will allow your account to survive those inevitable bad trades, to help stave off those emotional meltdowns, and provide your strategy with the time it needs to demonstrate that it can work. Let’s unpack what it is, how it works and why it’s a total game changer for traders of all experience levels.
What is the 1% Rule?
The 1% Rule refers to a money management policy that says you should risk no more than 1% of your account balance on any given trade.
That means:
You never risk more than $10 in a single trade if your account is $1,000.
So if your account is $5,000, you keep your per trade maximum loss to less than $50.
That doesn’t mean you only trade 1% of your capital.
It means that if your stop loss is reached, your total loss on the trade is not more than 1% of your account.
It’s not how big you trade — it’s how much you will theoretically lose when the market turns against you.
Why the 1% Rule is So Effective
It Keeps You in the Game More Time.
Trading is all about probabilities. Even with an edge, you will encounter losing streaks.
If you are risking 10% of your account balance on a per trade basis, a few losing trades can have you wiped out.
I mean let’s say you have $1,000:
Lose 10%? You’re down to $900.
Lose another 10%? Now you’re at $810.
With 5 losing trades in only 6+ hours, you’re already below $600.
Compare that with risking 1% per trade:
After 5 trades that loses, they are down $150.
The point of having good risk management is that your capital will exhibit the survival and that your edge will manifest itself.
It Minimizes Decision Making Based on Emotions
“Well, I felt franchising was the best option.” Sure, The Franchise King’s head exploded.
Because when you’re only risking a predetermined small amount, you are much less likely to:
- Panic during drawdowns
- There are also outliers who do the opposite and overreact to minor market moves.
- Revenge trade to get your money back
When you risk too much per trade, you are invoking your fight-or-flight instinct — which leads to emotional decision-making. The 1% rule keeps you disciplined and on track.
It Makes Losing Streaks Manageable
And even with a good strategy, it’s not uncommon to lose 4–6 trades in a row. The 1% rule keeps those streaks from ruining your account.
Someone who risks 1% per trade can go on a 10-trade losing streak and still have over 90% of their account left, to trade effectively and with clear mind.
It Encourages People to Think Long Term
The fact that you’re risking less will make you think like a professional. It shifts your focus from:
“How much can I make today?”
To:
“How can I stick to it and grow my account long-term?
That mind-set shift is the beginning of true growth.
How to Measure 1% Risk Per Trade
Suppose you have a $2,000 account. You want to put on a trade and never let the risk exceed 1%.
1% of 2000 = $20 risk per trade
You set your stop-loss distance now. Assume you enter at $100 with a $98 stop loss, which represents a $2-per-share loss.
To only risk $20:
$20 ÷ $2 = 10 shares
So now you can purchase 10 shares with a what? $2 stop, risking exactly what? $20 (or 1%).
Use this easy-to-understand formula to quickly size every trade with zero frustration!
Pro Tip: The 1% Rule Applies to Any Trading Style
Day trading? It shields you from short intraday reversals.
Swing trading? It prevents your capital from getting killed by overnight gaps.
Scalping? It doesn’t encourage inaccuracy and wild variation, but precision and consistency.
Crypto or Forex? Risk control is only more important with volatility.
That rule holds true — regardless of the asset class or strategy.
What Happens If You Don’t Address It
And most brand-new traders blow accounts not because their strategy is garbage… but because they:
- Overleverage
- Don’t set stop losses
- Go “all-in” on one idea
- Double down after a loss
It creates emotional spirals, huge drawdowns and the ultimate desire to quit trading.
The 1% rule saves you from catastrophic losses that even most traders can never recover from.
What Happens If You Do It
Traders who adhere to the 1% guideline:
- Trade with less stress
- Decide based on data, not out of emotion.
- Develop repeatable, scalable processes
- Accumulate their accounts SLOWLY – without the risk of ruin”
It’s not glamorous. But it’s how long-term winners think and act.
Want to Scale Up Over Time?
Once you have consistently achieved profitability, you can opt to adjust the 1% rule in order to grow more quickly—responsibly.
Many pros use something like:
0.5–1% during learning, or high volatililty
1–2% when steady, confident
into and towards —> 0.5% if being on a losing streak (or uncertain)
The beauty is: you’re always behind the wheel.
Final Thought: The Long Game
There is one trade and you can’t control the outcome.
But there’s something you can control every time you trade — how much you’re risking.
You’re not going to get rich overnight with the 1% rule.
It isn’t the recipe for 100% win rates.
But it will keep you in the game, preserve your capital and help you develop discipline.
And in trading, that’s everything.”