Trading strategy "1% of deposit": Maximize profit, minimize risks
In the trading world, whether it's cryptocurrencies, stocks, or Forex, one of the key tasks is not only to make a profit but also to effectively manage risks. No matter how good your trading strategy is, without proper capital management, you risk quickly losing your entire deposit. This is where the "1% of deposit" strategy comes into play – a simple yet incredibly powerful principle that should be in every trader's arsenal.
What is the "1% of deposit" strategy?
The "1% of deposit" strategy is an approach to capital management where the maximum risk you are willing to take in one trade is no more than 1% of your total trading deposit.
In simpler terms:
* If your deposit is 1,000 dollars, you do not risk more than 10 dollars in one trade.
* If your deposit is 10,000 dollars, your maximum risk per trade is 100 dollars.
This principle defines your position size based on a predetermined stop-loss level.
Why exactly 1%?
The choice of 1% is not random and is based on several important reasons:
* Deposit protection: This is the main goal. Losing 1% of your deposit in one trade is a small amount. To lose your entire deposit, you would need to make 100 losing trades in a row, which is extremely unlikely if you have any meaningful trading strategy. This gives you a huge margin of safety.
* Emotional resilience: Small losses are much easier to endure psychologically. When you risk a large amount, each trade becomes a source of stress, leading to impulsive and irrational decisions.
* Flexibility: The 1% strategy allows you to endure long losing streaks without critical damage to your deposit. You can continue trading and wait for the market to turn in your favor.
* Scalability: As your deposit grows, the allowable risk in absolute terms increases, allowing you to proportionally increase your position sizes according to your capital.
How to calculate position size?
Position size calculation is a key step in applying this strategy. It always depends on the distance to your stop-loss.
Formula:
Position size (in units of the asset) = (1% of deposit) / (Distance to stop-loss in risk currency)
Let's break it down with an example:
Let's assume:
* Your deposit: 5,000 USD
Maximum risk per trade (1% of deposit): 5,000 USD 0.01 = 50 USD
* You want to buy asset X (for example, BTC). Current price: 30,000 USD.
* You have set the stop-loss at: 29,900 USD.
* Distance to stop-loss: 30,000 USD - 29,900 USD = 100 USD (per one unit of BTC)
Position size calculation:
Position size = 50 USD (your risk) / 100 USD (risk per unit of BTC) = 0.5 BTC
Thus, with a deposit of 5,000 USD and a stop-loss of 100 USD from the entry point, you can buy 0.5 BTC. If the price drops to 29,900 USD, you will lose 0.5 BTC * 100 USD = 50 USD, which is exactly 1% of your deposit.
Steps to apply the "1% of deposit" strategy:
* Determine the size of your trading deposit. This is the total amount of funds you have allocated for trading.
* Calculate 1% of your deposit. This is your maximum amount of risk per trade.
* Find the entry point and stop-loss level. Before opening any trade, you must clearly understand where you will enter the market and where you will exit if it goes against you. The stop-loss is your protection.
* Determine the "distance to stop-loss". This is the difference between your entry point and the stop-loss level in the currency of the traded asset.
* Calculate position size. Use the formula to find out how many units of the asset you can buy/sell.
* Open a trade with the calculated position size and set stop-loss.
When should you deviate from 1%?
Although 1% is the golden standard, in some cases, small deviations can be considered:
* For beginners: It may be worth starting with 0.5% or even 0.25% to fully get accustomed to trading and risk management before increasing it.
* For very confident trades (rarely): Some experienced traders may risk 2% in trades with a very high probability of success, but this should be an exception, not the rule. Never exceed 2-3%.
* Market volatility: In very volatile markets, where stop-losses can be wide, 1% can lead to a very small position size. In such cases, it's better to reduce the number of trades or choose less volatile assets rather than increasing risk.
Advantages of the "1% of deposit" strategy:
* Long-term survivability: You remain in the game even after a series of losses.
* Discipline: Forces you to define your stop-loss in advance, which is the basis of sensible trading.
* Protection against "blowing" the deposit: It is virtually impossible to lose all your money in a short time.
* Stress reduction: Trading becomes less emotional and more systematic.
Conclusion
The "1% of deposit" strategy is not just a rule; it is a philosophy of capital management. It does not guarantee you profit, but it guarantees that you will not lose all your capital quickly. By applying it consistently, you lay a solid foundation for your trading success, allowing yourself to learn, adapt, and ultimately grow as a trader. Start applying this strategy today, and you will notice improvements in your trading and your attitude towards risk.
