The 1% risk rule is a simple but powerful risk management strategy. It says that you should never risk more than 1% of your trading capital on a single trade. This helps protect your money from big losses, especially when the market is unpredictable.

What is the 1% Risk Rule?

The 1% risk rule means that you only risk 1% of your total trading capital on each trade. For example, if you have ₹1,00,000 in your trading account, you should risk no more than ₹1,000 per trade. If the trade goes against you, the maximum loss you would face is ₹1,000, no matter what. This rule helps you avoid losing too much in any one trade.

Why is the 1% Risk Rule Important?

The main reason the 1% risk rule is important is that it helps you manage risk and avoid big losses. In trading, there will be both good and bad trades. If you risk too much on a single trade, one bad trade could wipe out a large portion of your capital. The 1% rule protects you from this by ensuring that no single trade can cause a huge loss.

How to Apply the 1% Risk Rule?

To apply the 1% rule, you first need to calculate your risk per trade. Here’s how you do it:

• Step 1: Determine your total trading capital. For example, ₹1,00,000.
• Step 2: Multiply your capital by 1%. For ₹1,00,000, 1% is ₹1,000. This is the amount you can risk on a trade.
• Step 3: Next, calculate the distance between your entry point and stop loss. For example, if you’re buying a stock at ₹500 and your stop loss is at ₹490, your risk per share is ₹10.
• Step 4: Finally, divide your risk per trade by the distance between your entry and stop loss. For example, if your total risk is ₹1,000, and each share risk is ₹10, you can buy up to 100 shares (₹1,000 ÷ ₹10 = 100 shares).

By doing this, you control your risk and make sure that no matter what happens, you won’t lose more than 1% of your capital on a single trade.

Benefits of the 1% Risk Rule

By using the 1% risk rule, you can protect yourself from big losses and avoid emotional trading. Even after several bad trades, you will still have enough capital to continue trading. This gives you the confidence to stick to your strategy and stay in the game in the long term. It’s a simple yet powerful rule to help you grow your trading account slowly but steadily.