Strategies come and go. Risk management is forever. Professionals think about how much they can lose before they think about how much they can make.
The 1% rule
Risk 0.5%–2% of your account per trade. At 1%, ten losses in a row leaves you with about 90% of your account. At 10%, you'd have about 35% left and a broken spirit.
Losses are asymmetric
| You lose | You need to gain |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 50% | 100% |
Dig a deep hole and climbing out takes forever. See for yourself with the drawdown tool.
Wick says
"Just this once I'll risk 20%." Famous last words. Every blown account started with "just this once".
Key takeaways
- Risk a small, fixed percentage per trade.
- Losing streaks are normal; small risk survives them.
- Drawdowns take far more gain to recover than they took to lose.