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The 1% rule: size every trade from its stop-loss
Beginner · 5 min read
Most accounts are not ruined by a bad idea. They are ruined by a normal idea held at the wrong size. The fix is a rule decided before you look at the chart: one trade may lose at most a fixed small share of capital — commonly 1%, rarely more than 2%.
The arithmetic
- Risk budget = capital × risk %. With ₹2,00,000 and 1%, that is ₹2,000.
- Risk per unit = entry − stop-loss. Buying at ₹250 with a stop at ₹240 risks ₹10 a share.
- Position = budget ÷ risk per unit, rounded down. ₹2,000 ÷ ₹10 = 200 shares.
For futures and options, round down to whole lots. If even one lot risks more than the budget, the honest answer is “skip this trade” — not “take one lot anyway”.
Why so small?
Losing streaks are normal. At 1% a trade, ten losses in a row leave about 90% of the account; at 10% a trade, they leave about 35% — and you then need nearly a 190% gain just to get back. Small risk keeps you in the game long enough for an edge, if you have one, to show.
A wider stop means a smaller position
The stop belongs where the idea is proven wrong (see where a stop-loss goes). If that is far away, the rule simply gives you fewer shares. Size adjusts; the rupee loss does not.
Try the position size calculator