TradaZen
In 20 seconds
- Definition
- At most 1% of the account at stake per trade, decided before you enter.
- Calculation
- Position size = amount at risk ÷ stop distance.
- Example
- €10,000 account, stop 2% below entry: €100 ÷ 2%, a €5,000 position.
- Why
- Ten losses in a row at 1% leave 90.4% of the account; at 10% per trade, 34.9% is left.
- Pitfall
- A sudden price gap can make you lose more than planned.
The 1% rule sets in advance what a trade can cost you, so that no losing streak empties your account. On every trade, if your stop is hit, you lose at most 1% of your balance. Everything else, including position size, follows from that number.
This guide describes a training method, not investment advice. Trading carries a high risk of capital loss.
The calculation in two lines
- Amount at risk = balance × 1%. On a €10,000 account, that's €100.
- Position size = amount at risk ÷ stop distance, as a percentage of the entry price.
Example: €10,000 account, stop 2% below your entry. €100 ÷ 2% = €5,000. Your position is €5,000. If the stop is hit, 2% of €5,000 is indeed €100.
Same account, stop at 0.5%: €100 ÷ 0.5% = €20,000, twice the account. A tight stop allows a large position for the same risk. This is where leverage comes in: it makes that size possible, but it doesn't change what you risk if the stop holds.
You can also calculate in units. You buy an asset at 60,000 with a stop at 58,800, a gap of 1,200. €100 ÷ 1,200 = 0.083 units. If the stop is hit, you lose 0.083 × 1,200, which is €100.
Order matters. The stop goes in first, where your idea is proven wrong. Size comes next. If you do it the other way around, a round size and then a stop "wherever it fits," your account is placing the stop, not the market.
Why 1% and not 10%
Losing streaks happen, even with a sound method. The table shows what is left of an account after consecutive losses, depending on the risk per trade:
| Losses in a row | 1% risk | 2% | 5% | 10% |
|---|---|---|---|---|
| 5 | 95.1% of the account | 90.4% | 77.4% | 59% |
| 10 | 90.4% | 81.7% | 59.9% | 34.9% |
| 20 | 81.8% | 66.8% | 35.8% | 12.2% |
A streak of ten is not an extreme scenario. With 40% winning trades over 200 trades, the longest losing streak reaches eight or more three times out of four. Its median value is nine. This figure comes from a simulation of 20,000 runs of 200 trades.
Climbing back costs more than falling:
| Account loss | Gain needed to recover |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 35% | 53.8% |
| 50% | 100% |
At 1% per trade, ten losses in a row hurt but can be recovered. At 10%, they leave an account that has to almost triple to get back to where it started.
A ceiling, not a magic number
1% is a common ceiling. Some traders risk 0.5%, others 2%. Three conditions make the rule hold:
- The number is set with a cool head, before the session, and it doesn't move during it.
- It is calculated on your actual balance, not on the balance you had before your last loss.
- It comes with a daily limit. For example, three losses and you're done. Without that limit, ten trades at 1% on a bad day add up to 10%.
What the rule doesn't do
- It doesn't guarantee your maximum loss. A sudden price gap, a news release, an order filled further away than planned: the loss can exceed 1%. With leverage, it can even exceed your stake.
- It doesn't make a method a winning one. If your method loses on average, the 1% rule slows the decline, it doesn't reverse it.
- It doesn't prevent tilt. A rule you stop following after three losses protects nothing. Tilt in trading often starts with a size you increase "to win it back."
The method, step by step
- Set your risk percentage once and for all, with a cool head.
- Place your stop where your idea is proven wrong.
- Measure the distance between your entry and your stop.
- Calculate the size: amount at risk ÷ stop distance.
- Check the ratio. If your target isn't worth at least twice your risk, pass. The guide on the risk/reward ratio walks through the calculation.
- Record the result in R in your trading journal: 1 R is that amount at risk.
Common mistakes
- Confusing 1% of the account with a 1% price move: the rule is about the possible loss, not the stop distance.
- Choosing the size before the stop, then squeezing the stop in wherever it fits. It then lands in the noise and gets hit.
- Increasing size after a loss: risk is decided before emotion, not during it.
- Forgetting fees: on a tight stop, they can make up a significant share of the risk.
Candlestick patterns with long wicks, like the hammer or the engulfing pattern, push the stop further away. The 1% rule then requires a smaller position.
Practice the calculation
In TradaZen, the "Position size" unit teaches you to calculate the size that puts exactly 1% of the account at risk, stop included. The questions are concrete: an account, a risk percentage, a stop at a given distance, and you choose the right size. Others show you what's left after several losses in a row.
The app menu also includes a "Position size" tool that calculates your size for 1 R. And in Training, you make decisions on real past charts with a simulated balance: if you get the size wrong, it costs nothing. To learn more, read the page on the trading simulator.
Frequently asked questions
How do you calculate position size?
Take the amount you're willing to lose, for example 1% of your account, and divide it by the distance between your entry and your stop, expressed as a percentage. €10,000 account, €100 at risk, stop at 2%: the position is €5,000.
Should you risk 1% or 2% per trade?
Both are used. At 2%, ten losses in a row leave 81.7% of the account, versus 90.4% at 1%. The right number is the one you can stick to without changing it after a losing streak. When in doubt, the smaller one is more forgiving.
Does the 1% rule apply to a small account?
Yes, the calculation is the same. On a €500 account, 1% is €5 of risk per trade. That seems small, and that's exactly the point: learning without a losing streak wiping out the account.
1% of the account or 1% of the price?
1% of the account. The rule sets what you can lose if your stop is hit. The stop distance, on the other hand, can be 0.5% or 5% of the price: position size adjusts so the loss stays at 1% of the account.
Mehdi Azizi created TradaZen and published it on the App Store through the Devoria studio. The app's scenarios are real past charts, never made-up data.
TradaZen is a training tool: you play on past market data with a simulated balance. It is not a broker and not investment advice. Real trading carries a risk of capital loss.
