Rule number one: protect your money

The surprising maths of losses

Free lesson

Understand why big losses are so hard to recover from, and the 1% rule professionals use.

After a loss of L%, you need L ÷ (100 − L) × 100% just to get back to even.
Small losses are easy to recover from; large losses can take years — or never recover.
The 1% rule: risk about 1% of your account on any single trade.
Protecting capital comes before chasing profit.

−10% → +11.1% needed

−25% → +33.3% needed

−50% → +100% needed

−75% → +300% needed

You lose 50% of your account. What gain do you need to get back to even?

+100% - $1,000 → $500. Doubling $500 is +100%.

With a $2,000 account and the 1% rule, how much do you risk per trade?

$20 - 1% of $2,000 = $20.

Why do professionals focus on limiting losses?

Because big losses are very hard to recover from - The recovery maths gets brutal as losses grow.

Here is the most important maths in trading. Losses and gains are not equal. Let me show you.

You start with 1,000 dollars, and you lose half. Now you have 500.

To get back to 1,000 dollars, a 50 percent gain isn't enough. You need to double your money: plus 100 percent.

The deeper the hole, the harder the climb. Lose 10 percent and you need 11 to recover. Lose 25 and you need 33.

Lose 50, and you need 100. Lose 75, and you need 300 percent. That's why professionals obsess over losses, not gains.

Many professionals use a simple rule: risk about 1 percent of the account on any single trade.

With 1,000 dollars, that's 10 dollars at risk per trade. Even 10 losses in a row would cost you about 10 percent, not everything.

Let's recap.

Educational information only - not financial advice.