An edge only pays out if you are still trading when it arrives. Risk rules exist to guarantee that, and nothing else. They are not about being careful; they are about staying in the sample.
Why one percent
The number itself matters less than what it does to your drawdown maths. Risking 1% per trade means ten consecutive losses cost roughly 10% of the account - unpleasant, survivable, and recovered with an 11% gain. Risking 5% turns the same ten losses into a 40% hole that needs 67% to climb out of.
| Risk per trade | After 10 losses | Gain needed to recover |
|---|---|---|
| 1% | -9.6% | 10.6% |
| 2% | -18.3% | 22.4% |
| 5% | -40.1% | 67.0% |
| 10% | -65.1% | 186.5% |
The right-hand column is the whole argument. Losses compound against you faster than gains compound for you, and past a certain point the recovery required stops being realistic.
The three limits
- Per trade: 1% of account equity, calculated from the stop distance and never from a fixed lot size.
- Per day: stop at -3%. Three full losses is enough information for one day.
- Per week: stop at -6%. A week that bad is a signal about conditions or about you, and more trades will not fix either.
Sizing from the stop
Position size is an output, not an input. Fix the risk amount, measure the distance to the stop, and let the lot size fall out of the division. If the resulting size feels too small, the problem is the stop distance or the setup - not the risk rule.
Decide what you are willing to lose before you decide what you hope to make.