Following the rule means you never risk more than 1% of your account value on a single trade. That doesn’t mean that if you have a $30,000 trading account, you can only buy $300 worth of stock, which would be 1% of $30,000.
You can use all of your capital on a single trade, or even more if you utilize leverage. Implementing the 1% risk rule means you take risk management steps so that you prevent losses of more than 1% on any single trade.
No one wins every trade, and the 1% risk rule helps protect a trader’s capital from declining significantly in unfavorable situations. If you risk 1% of your current account balance on each trade, you would need to lose 100 trades in a row to wipe out your account. If novice traders followed the 1% rule, many more of them would make it successfully through their first trading year.
Risking 1% or less per trade may seem like a small amount to some people, but it can still provide great returns. If you risk 1%, you should also set your profit goal or expectation on each successful trade to 1.5% to 2% or more. When making several trades a day, gaining a few percentage points on your account each day is entirely possible, even if you only win half of your trades.