⚡ Trading & Risk · Lesson 3 of 11 · 8 min
Position Sizing & The 1% Rule
🎲 The fastest way to blow up an account isn't picking bad stocks — it's betting the farm on one good idea that didn't care about your feelings.
💡 Key idea
Never risk more than ~1% of your account on one trade. Survival first — profits only happen if you're still in the game.
🧠 Why it matters
POSITION SIZING is how much of your account you put into a single trade. The classic guardrail is the 1% RULE: never risk more than 1% (some say 2%) of your total account on any one trade. 'Risk' means the distance to your stop-loss, not the whole position. The math: shares to buy = (1% of your account) ÷ (entry price − stop price). Example: $10,000 account → $100 max risk; buy at $50 with a stop at $45 ($5 risk/share) → 20 shares. Survive enough trades and your edge can play out; bet too big once and a single loss ends the story.
🌍 In the real world
💡 Two traders, both right 6 times out of 10. The one risking 2% per trade grinds steadily up. The one going all-in on each 'sure thing' is one bad trade from zero — and over enough trades, that bad trade always shows up.
📌 Takeaways
- Position sizing = how much you put in one trade
- The 1% rule caps risk per trade at ~1% of your account
- Risk = distance to your stop, not the whole position
📖 Terms in this lesson
Position sizing: Deciding how much to put into one investment so a single loss can't hurt much.
✅ Test yourself
The 1% rule says don't risk more than 1% of your...
- Daily income
- Total account on one trade
- Net worth per year
- Paycheck
Answer: B · Total account on one trade
It caps how much of your whole account a single trade can lose.
Why does position sizing matter MORE than stock picking?
- It doesn't
- Betting too big means one loss can wipe you out
- It avoids taxes
- It guarantees gains
Answer: B · Betting too big means one loss can wipe you out
Even a great stock-picker goes broke if one oversized loss ends the account.
In the 1% rule, 'risk' means...
- The entire position size
- The distance from entry to your stop-loss
- The dividend
- The fee
Answer: B · The distance from entry to your stop-loss
Your risk is what you'd lose if the stop hits — not the full amount invested.
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