What should be the risk limit per trade?

<p id="isPasted">The risk limit per trade should typically be between 0.5% and 2% of your total trading capital. This risk management rule is the most crucial factor in ensuring the longevity of a trading account and protecting against large losses.</p><p><strong>Determining Your Ideal Risk Limit</strong></p><p>The ideal percentage for you will depend on a few factors:</p><ul><li>Trading Experience: Beginners should stick to the lower end, around 0.5% to 1%, as they are more likely to make errors in judgment or execution. Experienced traders with a proven track record might venture toward the 2% mark.</li><li>Trading Strategy Win Rate: If your strategy has a high win rate (e.g., above 60%), you might be able to slightly increase your risk percentage. If your strategy has a lower win rate (e.g., 40-50%), a conservative limit is essential to manage drawdowns (periods of loss).</li><li>Risk Tolerance: Ultimately, you must be comfortable with the potential loss. Risking 2% on a INR 50,000 account means you are comfortable losing INR 1,000 in one trade. If that figure makes you anxious, lower your limit to 1% (INR 500) or less.</li></ul><p><strong>The Calculation in Practice</strong></p><p>Here is how to calculate your maximum position size using a 1% risk limit:</p><ul><li>Total Capital: INR 50,000</li><li>Risk Limit (1%): INR 500 (This is your maximum loss per trade)</li><li>Risk Per Share/Unit: (Entry Price - Stop-Loss Price) e.g., INR 5</li><li>Position Size: INR 500 (Max Loss) / INR 5 (Risk Per Share) = 100 shares</li></ul><p><strong>Why the 1% to 2% Rule is Critical</strong></p><ul><li>Sticking to this small percentage prevents a string of losses from decimating your account. For example, even with a 2% risk limit, you would need to have 50 consecutive losing trades to wipe out your entire account (assuming each loss is exactly 2% and the capital isn't recalculated after each loss). This is highly unlikely in the long run.</li><li>Discipline in adhering to this risk limit, regardless of how confident you are in a specific trade idea, is what separates professional traders from gamblers.</li></ul>