One percent is not a magic number. The reasoning behind it is.
The rule: risk no more than 1% of your account on any single trade.
The number itself is a convention. What matters is why a small fixed percentage — rather than a fixed dollar amount, or a size chosen by conviction — is the only structure that survives contact with a losing streak.
Percentage risk shrinks with the account
This is the whole mechanism, and it is easy to miss.
At 1% risk, your loss is always 1% of what remains:
| Loss # | Balance | Risked | Lost |
|---|---|---|---|
| Start | $10,000 | $100 | — |
| 1 | $9,900 | $99 | $100 |
| 5 | $9,510 | $95 | — |
| 10 | $9,044 | $90 | — |
| 20 | $8,179 |