7.1 Position Sizing & The Mathematics of Survival
The 1% Rule: Never risk more than 1% of your account on a single trade. With a $10,000 account, maximum risk per trade is $100.
Why 1%?
- 10 consecutive losses = down 10% (recoverable)
- 20 consecutive losses = down 20% (still recoverable)
- Risking 10% per trade: 5 consecutive losses = down 50% (need 100% gain to recover)
- Risking 25% per trade: 4 consecutive losses = down 100% (ruined)
Kelly Criterion (Advanced):
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