1% risk per trade is too much, try this instead
Hello traders,
Remember when you just started trading, almost everywhere you could hear about the 1% per trade risk rule? While this is not too bad, I think in most cases 1% risk is too much. Here's why:
1. If you're trading a 100k prop firm account, 1% is $1000. Imagine you have a very usual losing streak of 3-4 trades. Now you've lost 3-4%, and $3-4k in dollar amount. If you're a day trader, it could happen in one day easily. Ask yourself honestly, how would you feel about it all and if you will be capable of executing your edge?
2. Most prop firms will have a 5-10% drawdown breach rule So again, a very usual losing streak will take you halfway to account termination.
3. 1% risk leaves almost no room for days where you executed poorly or traded emotionally. We are all humans and we make mistakes. Something goes wrong and you trade the setup you were not supposed to be trading. And instead of stopping after 3 losers, you continue to trade more.
So what can we do about it?
My suggestion is very simple: risk no more than 0.1-0.25% per trade. If your average winner is 3-7RR, then with a good account size a 1% winner is just huge and more than enough.
And if you're going through the evaluation process, such a small risk will keep your equity curve in control and still will allow you to grow it to profit targets.
Hope it helps!
Remember when you just started trading, almost everywhere you could hear about the 1% per trade risk rule? While this is not too bad, I think in most cases 1% risk is too much. Here's why:
1. If you're trading a 100k prop firm account, 1% is $1000. Imagine you have a very usual losing streak of 3-4 trades. Now you've lost 3-4%, and $3-4k in dollar amount. If you're a day trader, it could happen in one day easily. Ask yourself honestly, how would you feel about it all and if you will be capable of executing your edge?
2. Most prop firms will have a 5-10% drawdown breach rule So again, a very usual losing streak will take you halfway to account termination.
3. 1% risk leaves almost no room for days where you executed poorly or traded emotionally. We are all humans and we make mistakes. Something goes wrong and you trade the setup you were not supposed to be trading. And instead of stopping after 3 losers, you continue to trade more.
So what can we do about it?
My suggestion is very simple: risk no more than 0.1-0.25% per trade. If your average winner is 3-7RR, then with a good account size a 1% winner is just huge and more than enough.
And if you're going through the evaluation process, such a small risk will keep your equity curve in control and still will allow you to grow it to profit targets.
Hope it helps!
Related publications
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.