The 1-2% rule

Position sizing starts with one decision made before any trade: how much of your account are you willing to lose if this single trade goes wrong? The widely used answer among professionals is small — 1% to 2% of account equity per trade.

Why so small

It is the ruin lesson made concrete. With 1% risk per trade, how many losses in a row would it take to do serious damage?

Risk 1% per trade, ten straight losses (a genuinely bad streak):
Account multiplier = 0.99 ^ 10 = 0.904  ->  about a 9.6% drawdown

A horrible run of ten losses costs under 10% — survivable, recoverable, emotionally bearable. Now compare risking 10% per trade:

Risk 10% per trade, ten straight losses:
Account multiplier = 0.90 ^ 10 = 0.349  ->  about a 65% drawdown

The same losing streak that is a bad week at 1% is an account-ending event at 10%. Same strategy, same luck — only the sizing differs.

Fixed-fractional sizing

Risking a fixed percentage of current equity (not a fixed dollar amount) has an elegant property: as the account grows you risk more in dollars, and as it shrinks you risk less. Losses automatically make you smaller, which slows a losing streak and makes ruin almost impossible from sizing alone.

The rule in one line

Decide your percentage first, every time, before you look at the entry. Everything in the next lessons is just the arithmetic that turns that percentage into an exact position size.