Position sizing turns risk management into arithmetic: decide what fraction of your account a single trade may lose, set a stop-loss, and the calculator gives the share count.
The 1% rule — risking at most 1% of capital per trade — means even ten straight losses draw down only ~10% of the account. Size comes from stop distance: tighter stops allow bigger positions at the same risk.
Slippage and gaps can push real losses past the stop level, so treat the calculated risk as a floor, not a ceiling.
The rule is about the account, not the trade, and it only works if applied consistently. Sizing every position at 1% keeps any single outcome survivable; making an exception for the one you feel strongest about reintroduces exactly the concentration the rule exists to prevent, usually at the worst moment.
Correlated positions are the common way the arithmetic is defeated. Ten trades at 1% each in the same sector is not ten independent risks — it is closer to one 10% risk wearing ten labels, and it behaves that way on the day the sector moves.
Stop distance also has to come from the market rather than from the position size you want. Setting the stop where the trade is genuinely invalidated and letting that determine size is the intended order; choosing the size first and placing the stop to fit it produces a level the price reaches for no reason at all.
Frequently asked questions
What is the 1% rule in trading?
Risk at most 1% of your account on any single trade. Even ten consecutive losses then draw the account down only about 10% — survivable, which is the entire point.
How do I calculate position size from a stop-loss?
Divide the money you are willing to lose by the per-share distance to your stop: €500 of risk with a €2 stop distance means 250 shares. Tighter stops allow larger positions at equal risk.
Does a stop-loss guarantee my maximum loss?
No. Overnight gaps and slippage can execute the stop well past its level, especially in illiquid names. Treat the calculated risk as a floor, not a ceiling.