Risk management: the lesson that keeps you alive
Position sizing, the 1% rule, reward-to-risk, and why this matters more than any strategy.
If you learn only one lesson in this course, make it this one. Strategy decides if you make money. Risk management decides whether you survive long enough to find out.
The 1% rule
Never risk more than 1% of your account on a single trade (2% at the very most). With a €2,000 account, that means your maximum loss per trade is €20. Not your position size — your loss if the stop is hit.
Position sizing formula
Position size = (Account × Risk %) ÷ (Entry price − Stop price)
Example: account €2,000, risk 1% = €20. You buy a stock at €50 with a stop at €48, so €2 risk per share. Position = €20 ÷ €2 = 10 shares. Use our position-size calculator — it does this instantly.
Reward-to-risk
If your stop is €2 away, your target should be at least €4 away (2:1). With 2:1 you only need to win 34% of trades to break even. With 3:1, just 25%.
| Reward : Risk | Win rate needed to break even |
|---|---|
| 1 : 1 | 50% |
| 2 : 1 | 33% |
| 3 : 1 | 25% |
Why small risk matters: the drawdown math
Lose 10% and you need 11% to recover. Lose 50% and you need 100%. Lose 90% and you need 900%. Big losses are mathematically brutal. Ten losses in a row at 1% risk costs you under 10%; at 10% risk it costs you 65%. Try it in the drawdown calculator.
- Every trade has a stop-loss placed when you enter.
- Never move a stop further away from your entry.
- Never add to a losing position.
- Maximum daily loss: 3% — then stop trading for the day.
Self-check
Answer the questions, then check your answers. You can retry as often as you like.
Automatic self-check for your own revision. Your answers are checked in your browser and are not seen or assessed by us. It is not an exam and not a qualification.
Your progress
“Complete” only means you marked the lesson as done. It is not a test of your understanding. Progress and notes are saved only in this browser on this device — not in an account.