Risk per Trade

1. What is Risk per Trade

Risk per trade is the percentage of the account you accept losing on a single trade if it hits the stop. "Risk 1% per trade" means: even when wrong, one trade only costs the account 1%.

It's the safety valve set in advance for each trade, and the input for position sizing.

2. Why it matters

• It decides how many losses in a row you can take before you're in trouble. At 1% per trade, ten losses in a row cost ~10%; at 10% per trade, a few losses cost half the account.
• Keeping risk per trade small and fixed is how you survive losing streaks — and losing streaks are certain for every strategy (see Drawdown).

3. Common levels

• The 2% rule: many money-management texts suggest risking no more than 2% per trade. Many traders pick 1% to be safer.
• The 6% monthly rule: if total losses in a month hit 6% of the account, stop trading until month-end, to avoid "digging deeper" during a bad stretch.
• Small-account or newer traders often pick lower (0.5-1%) to have more "lives" while learning.

4. How to apply

1. Pick a fixed level (e.g. 1%) and keep it for every trade in a period. 2. Each trade: Money risked = Capital × the % → feed it into the position-size formula. 3. Track total open risk: with several trades at once, combined risk shouldn't exceed a cap (e.g. 6%).

5. Worked example

$100k account, 1% per trade:

• Each trade risks at most $1,000.
• Five losses in a row → ~$5,000 (~5%), still $95k to continue.
• Compare: at 10% per trade, five losses in a row → ~41% of the account (from compounding), very hard to recover.

6. Common mistakes

• Risking too much per trade — the deep cause of blown accounts, even with a good strategy.
• Inconsistent risk — 1% here, 8% there because it feels "sure".
• Not counting combined risk of open trades — five trades at 2% each but same sector and direction is really one 10% bet.
• Increasing risk to recover fast after a loss — that's revenge trading.

7. FAQ

• 1% or 2%? Both are reasonable. Small capital / new → lean 1% or lower. More important than the number is consistency.
• With such small risk, when do I get rich? Risk management isn't about getting rich fast; it's about surviving long enough for your edge to work. Big size can get rich fast — and blow up fast.
• Should I vary % by trade confidence? Some systems do, but that's advanced. Beginners should fix it first.

8. Tools

• _(Coming)_ Shared Position Size calculator (enter risk % here).

9. Checklist

• ☐ Have I picked a fixed risk %?
• ☐ Does this trade follow it?
• ☐ Does combined open risk exceed my monthly cap?