Position sizing for Canadian traders over 50: the 1% rule, properly explained

Most beginners obsess over what to buy. Experienced traders obsess over how much. Position sizing is the single most important skill in trading, and it is also the most boring. That is exactly why so few people teach it properly.

What the 1% rule actually says

Risk no more than one per cent of your trading capital on any single trade. Not invest one per cent — risk one per cent. The difference matters enormously, and missing it is how people blow up their accounts on a single bad day.

A worked example in Canadian dollars

Suppose your dedicated trading sleeve is $25,000 CAD. One per cent of that is $250 CAD. That is the absolute most you should be willing to lose on the trade you are about to place. Now imagine you want to buy a stock at $50 and your stop-loss sits at $48. The distance from entry to stop is $2 per share. Divide your maximum loss ($250) by the per-share risk ($2) and you get 125 shares. That is your position size — not because the stock is cheap or expensive, but because that is what keeps you safe.

Why 1%? Why not 5%?

Math. Drawdowns hurt non-linearly. Lose 10 per cent and you need 11 per cent to recover. Lose 50 per cent and you need 100 per cent to recover. By keeping each loss small, a string of bad trades becomes a manageable speed bump rather than a retirement-ending event. For learners over 50, where time to recover is precious, this matters even more.

Mistakes we see most often

• Confusing position size with capital deployed. Buying $5,000 of stock is not the same as risking $5,000 — your risk is from entry to stop.
• Forgetting commissions and spreads in the per-share risk number.
• Inflating size 'just for this one' setup. There is no such thing as a setup that deserves to break your rules.

Build it into your trading plan

The most reliable way to follow the 1% rule is to write it down — literally, in your trading plan — and to calculate the position size before you ever click buy. Our free Foundations course includes a one-page worksheet for exactly this.