Lessons › Risk and money management › Risk a small slice

World 5 · Risk and money management · lesson 5 · level 2

Risk a small slice

Risk only a small slice, like 1%, on any one trade, so no single loss can knock you out.

In one line

Risk only a small slice, like 1%, on any one trade, so no single loss can knock you out.

Explained simply

Imagine a jar of 100 sweets that has to last a long time: take one at a time and a few bad days never empty it. Risking 1% per trade works the same way. Even ten losses in a row leave about 90% of your account for tomorrow.

The lesson

Many traders risk a fixed 0.5% to 2% of their account on each trade, meaning the amount lost if the stop is hit. With 1% risk, ten losses in a row cost about 9.6%, which hurts but is survivable. The percentage stays the same as the account grows or shrinks, so the amount at risk adjusts automatically. Risk is set by the stop, not by the size of the position, so a large position with a close stop can still risk only 1%.

A worked example

Illustrative example: with a balance of 1,00,000 rupees and 1% risk, the most you plan to lose on one trade is 1,000 rupees (1,00,000 times 0.01). After one loss the balance is 99,000 (1,00,000 minus 1,000), so the next 1% is 990 (99,000 times 0.01). Ten 1% losses in a row leave about 90,438 rupees (1,00,000 times 0.99 multiplied by itself 10 times), a drop of about 9.6%.

The same idea at four levels

1. Beginner. Risk per trade is the money you lose if your stop is hit.
2. Foundation. Many traders risk a fixed 0.5% to 2% of the account per trade, such as 1,000 rupees on 1,00,000.
3. Intermediate. Because it is a percentage, the amount shrinks after losses and grows after wins: 1% of 99,000 is 990.
4. Advanced. Position value is not risk: a 5,00,000 rupee position with its stop 0.2% away risks only 1,000.
5. Expert. Experts keep the same percentage on every trade, even ones that feel certain, because a bigger slice swings the account harder both ways and no edge is ever known for sure.

Mistakes to avoid

• Risking more on trades you feel sure about.
• Confusing position value with risk; a large position with a close stop can still risk only 1%.
• Keeping the old money amount after a losing run instead of working out 1% of the new balance.

Goal of this lesson: Limit the risk on each trade to a small, fixed percentage of the account.