How much should you risk per trade? Work it back from your drawdown limit
Decide the largest drop you will accept for the session, divide it by the number of losing trades in a row you should expect, and the answer is your risk per trade. With a 10% drawdown budget and room for five straight losses, that is 2% of the account on each trade. The "1% to 2% rule" most traders quote is this sum with the working left out.
Where does the 1% to 2% rule come from?
From losing streaks. A strategy that wins half the time loses five trades in a row about once in every 32 runs of five. Over a few hundred trades that streak is close to certain to turn up.
At 2% a trade, five straight losses cost just under 10% of the account. At 10% a trade they cost about 41%, and you then need a gain of roughly 69% to get back to where you started. The streak is the same in both cases. The size is what turned it from a bad afternoon into a blown account.
How do you work out your own number?
Three steps.
- Set the drawdown budget. This is the drop from your high point that you will accept before you stop. A prop firm challenge sets it for you with a maximum loss rule. A Sivex Play tournament sets it through the score: drawdown up to 10% costs nothing, and every point past it takes 1.5× off your score.
- Pick the streak to survive. Five losses in a row is a sensible floor for a strategy that wins about half the time. Use a longer streak if your win rate is lower.
- Divide. Budget divided by streak is your risk per trade.
| Drawdown budget | Losing streak to survive | Risk per trade |
|---|---|---|
| 10% | 5 | 2% |
| 10% | 10 | 1% |
| 5% | 5 | 1% |
| 4% | 8 | 0.5% |
How do you turn a percentage into a position size?
Risk per trade is the money you lose if your stop is hit. The position size follows from it: money at risk, divided by the distance to your stop.
On a $10,000 account, 2% is $200. If your stop sits 0.5% from your entry, a position of $40,000 loses $200 when it is hit. Move the stop to 1% away and the position halves, to $20,000.
So the stop sets the size. Place the stop where the chart says the trade is wrong, then let the sum tell you how big to go.
Does a short session change the answer?
The sum stays the same. The temptation changes. With 30 minutes on the clock, sizing up to make the session count feels reasonable.
On a score that subtracts drawdown it backfires. One oversized loser can put you past the 10% line, and every further point of drawdown takes 1.5× off your score even if the trade recovers. Six scored sessions show what that costs.
One more thing to size for: on Sivex Play a new position is locked for 30 seconds. Until the lock ends it cannot be closed, by you or by your stop. Leave room for that when you choose the size.
What should you check before every trade?
- Where is my stop?
- How much money do I lose if it is hit?
- Is that the same share of my account as my last trade?
If the third answer is no, the size came from a feeling. The full score formula is in how trading tournaments are scored, and TradeLab lets you practise the habit for free.
◆ Related posts
Six sessions from the same starting capital, each scored with the live formula, so you can see what a deep drawdown takes off your result.
Blown accounts come from five risk habits, and chart reading is rarely one of them. What each habit costs, and how to practise without an account on the line.
A sport needs an opponent, equal conditions, a clock, a score and a ranking. Ordinary trading has none of them. Here is what changes when it gets all five.