Hello fellow traders and investors, many people say to risk no more than 1% per trade however this might not be a good idea in some scenarios, let me explain.
The 1% Risk Per Trade Rule has been taught for a very long time however in my opinion in some scenarios you should consider using a higher risk per trade.
Why the 1% Risk Per Trade Rule:
- Harder to blow your account
- Easier to recover from losing 1% on a trade
The 1% Risk Per Trade Rule is very good since someone that doesn’t have risk management and risks let’s say 50% if that trade doesn’t go according to plan then they will have to make a 100% return to recover from that loss.
What I’m Recommending:
I totally agree with the 1% Risk Per Trade Rule in most cases however if you have an account size that’s let’s say 1000$ then the 1% Per Trade Rule might not apply. Let me give you an example, you’ve spotted a trade that has 10% upside(take profit) and 3% downside(stop loss) then you would buy 300$ worth of the stock with 30$ upside and 9$ downside, well if 9$ isn’t a lot to lose for you then you could put 600$ in the trade with 60$ upside and 18$ downside, and if the person taking this trade feels comfortable with an 18$ potential loss then this might be a better trade for that particular person. I don’t recommend for anyone to use over a 3% risk per trade since anything over this is could cause serious damage to your account.
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