I have a little confusion regarding my risk per trade management. I am unclear if I need to calculate this absolute amount each time with the new account value or the risk per trade is calculated once and reused no matter if the account size grows or decreases.

Consider the following example:

Let's say I have an account of $1,000, I decide to risk 1% of it: $1,000 * 1% = $10. Assuming I entered a trade and lost, account size remaining will be $990. Do I need to recalculate that risk based on the new account size, i.e. $990 * 1% = $9.9?

If this is the way I notice something that could not be so beneficial, consider this next hypothetical case:

You win and lose, consecutively let's say 10 times. When you do the math you will notice that the next per-trade value is decreasing in a spiral fashion. This makes me so confused, I don't exactly know which way to go.

  • If the odds are 1 to 1 and the probability is 50% then the second wager of 9.90, if correct, will still not break-even after losing the first wager of 10. Maybe the second wager should be 10.10 ?
    – S Spring
    Jan 6, 2023 at 19:40
  • Please use a spellchecker next time.
    – 0xFEE1DEAD
    Jan 7, 2023 at 15:55
  • 1
    Does this answer your question? Why do the traders prefer 1% rule instead of kelly criterion?
    – 0xFEE1DEAD
    Jan 7, 2023 at 15:57
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    @SSpring the "doubling down" you suggest to recoup your losses is a quick road to ruin if the market moves against you. See also: en.wikipedia.org/wiki/Martingale_(betting_system)
    – 0xFEE1DEAD
    Jan 7, 2023 at 16:01
  • @0xFEE1DEAD: Given that the one Answer mentions the Kelley Criterion, and that comments are explicitly ephemeral and may not be retained for future readers, it might be a good idea for you to expand these comments into an Answer.
    – keshlam
    Jan 8, 2023 at 0:37

1 Answer 1


You could make a case for either system. The important thing is that you have a risk management framework that you apply consistently.

The idea behind a certain risk-per-trade amount is to keep your bets small to avoid blowing your account up, i.e. incurring losses that are so big it's (nearly) impossible to recover from them. The assumption is that you will make n independent bets and that on average, the winners will outweigh the losers.

In the first scenario, you allocate your risk capital at the beginning. You say you'll make 100 bets of $10 each. Whether you place them all at the same time or consecutively doesn't matter.

In the second scenario, you dynamically adjust your risk capital: if you lose, you reduce the size of the next bet; if you win, you increase it. This is similar to applying the Kelly criterion

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