A 1-percent risk rule is one of the day trading risk management. The rule minimizes the capital losses or the experiences of the rough market condition of the traders, but still, give a great monthly income at the same time.
Defining the 1-Percent Risk Rule
The basic definition of the 1-percent risk rule makes the traders follow the rule of never risk more than 1 percent on each trade of their account.
However, that does not mean you only can spend $300 if you own $30,000 on your trading account. You still can use all of your capital to purchase an asset in a single trade. Besides, you can even purchase more than that, with the help of leverage.
You only have to be careful to only risk 1% out of your capital on your trading account.
There is no one who can win all of his or her trades. This 1-percent risk rule 1protects the trade’s capital from a significant decline during the unfavorable situation.
Losing only 1 percent from your total capital per trade means you need 100 trades to wipe out all of your capital. Many new traders make successful trading by following this 1 percent rule in their first year.
It may seem small to risk only 1 percent, yet this still provides a great return. By risking 1 percent, you can set your profit goal on each of your successful trade up to 1.5 percent to 2 percent. You can make a few percentage points each day through several trades.
Ways to Apply This 1-Percent Rule
With the market that moves only several percents, you still can gain a 2 percent return on your account. By using stop-loss orders and profit targets, you still also can risk 1 percent when the price moves around 5 percent to 0.5 percent.
You can apply this rule in day trading stocks or other markets like futures or forex.