00:00The 1% rule in crypto is a risk management principle stating that a trader should never
00:05risk more than 1% of their total portfolio capital on a single trade. If you have $10,000,
00:11your maximum acceptable loss on any one position is $100, meaning your position size and stop loss
00:18placement must be calculated together to keep the loss within that 1% ceiling, not the entry price
00:24itself. This differs from position sizing rules used elsewhere in crypto. 1. The 1% rule limits
00:31risk per trade based on stop loss distance, making it suitable for active traders using leverage or
00:37spot trading with defined exit points. 2. Some traders use a more aggressive 2-3% rule,
00:44accepting higher volatility for faster capital growth, typically favored by those with higher
00:49risk tolerance or smaller accounts seeking quicker compounding. 3. Long-term holders often ignore
00:56per trade risk rules entirely, applying portfolio allocation percentages instead, e.g., never putting
01:03more than 5-10% of net worth in crypto overall. The rule's application shifts with context.
01:09For highly volatile altcoins with wide price swings, some traders reduce exposure to 0.5%
01:16per trade since stop losses must be placed further away, increasing position risk. For major assets
01:22like Bitcoin or Ethereum with lower relative volatility, the full 1% is more commonly applied.
01:28And during high-leverage futures trading, the rule becomes stricter because liquidation risk
01:33amplifies losses beyond the intended stop. There's no official, universally cited statistic proving 1%
01:41outperforms other thresholds. It's a widely adopted heuristic from traditional trading risk management,
01:46not a back-tested crypto-specific metric. So treat it as a discipline tool rather than a guaranteed
01:52profitability formula. Practically, before entering any trade, calculate your stop-loss level first,
01:59then size your position so that a stop-out costs no more than 1% of total capital. This protects
02:05against ruin during crypto's frequent double-digit swings.
02:08Finally, remember that everything we discussed today is for educational purposes only and does
02:14not constitute financial advice. Good luck to everyone, and see you in the next video.
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