If you ask the best traders around the world on how to become a profitable trader, a large number of them will talk about ‘risk management’. One of the most popular risk management techniques is the 1% risk rule. This rule means that you must never risk more than 1% of your account value on a single trade. You can use all your capital or more (via MTF) on a trade but you must take steps to prevent losses of more than 1% in one trade.
No one wins every trade, and the 1% risk rule helps protect a trader's capital from declining significantly in unfavourable situations. If you risk 1% of your current account balance on each trade, you would need to lose 100 trades in a row to wipe out your account. If followed correctly, this will help you to continue trading in the markets for a long time.
Risking 1% or less per trade may seem like a small amount to some people, but it can still provide great returns. If you risk 1%, you should also set your profit goal or expectation on each successful trade to 1.5% to 2% or more. When making several trades a day, gaining a few percentage points on your account each day is entirely possible, even if you only win half of your trades.
The best way to go about this is to set strict stop loss and target orders while trading. We at Upstox provide this facility via our GTT - 'Good-Till-Triggered’ feature. Learn more about it here.
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