Rule 3-5-7: Your Shield Against Trading Losses

If you’re a trader and haven’t mastered this rule yet, it’s time to adopt it. The 3-5-7 Rule is basically your financial airbag:

3%: Never risk more than 3% of your capital on a single trade. This way, even the worst streak won’t wipe you out.

5%: Your total exposure across all open trades shouldn’t exceed 5% of your portfolio. For example, with $50,000, you should have no more than $2,500 exposed to the market at any given time.

7%: Your profits should be at least 7% greater than your losses. If you lose $300, you need to make at least that amount back on your next winning trade.

Why does it work? Simple: it protects your trader psychology. You don’t risk what you can’t afford to lose, avoid over-leveraging, and force your mind to seek high-quality setups, not just any random trade.

The difference between traders who last for years and those who disappear in three months is exactly this: discipline in risk management. Without this rule, it’s like driving without a seatbelt.