Money management and position sizing: the 1% rule

Most blown accounts are not caused by bad analysis but by bad sizing. A trader risking 20 percent per trade is finished after five losses in a row, however good the analysis.

The 1 to 2 percent rule

Risk no more than 1 to 2 percent of your balance on any trade. At 1 percent, even ten consecutive losses, which can happen to any strategy, cost only about 10 percent of the account.

The position-size formula

Lots = risk amount ÷ (stop distance in pips × pip value for 1 lot)

Example:

• Balance $5,000, 1% risk = $50
• Stop: 25 pips on EURUSD (about $10 per pip for 1 lot)
• Size = 50 ÷ (25 × 10) = 0.2 lots

For gold: with an $8 stop (80 pips) and $100 per $1 move for 1 lot, risking $50 gives 50 ÷ 800 ≈ 0.06 lots.

Note: set your stop from market structure first, then calculate the size, never the other way round.

Risk-reward and win rate

Risk-reward	Minimum win rate to break even
1:1	50%
1:2	33%
1:3	25%

With 1:2 risk-reward, you do not lose money even if only one in three trades wins.

Extra rules

• Daily loss limit: for example 3%. Hit it and you are done for the day.
• Total open risk: keep it under 4 to 5 percent at any time.
• Correlated pairs such as EURUSD and GBPUSD are effectively one trade; add their risk together.
• After a losing streak, reduce size; never increase it.

See the position-size calculator in our tools section.

📘 This article summarises ideas from our book "Fibonacci Chart Strategy", with 22 chapters and 137 real before-and-after examples. To get the book, message us on Telegram @fibonacci_chart.

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Trading financial markets involves risk. This article is educational and is not investment advice.