Crucial Risk Management: How to Avoid Liquidation & Set Stop-Loss
The 1% rule, position sizing from your stop distance, stop-loss placement and a pre-trade checklist that keeps you in the game.
The 1% rule
Professional traders rarely risk more than 1–2% of their account on a single trade. With a $5,000 account and 1% risk, a trade that hits its stop-loss costs $50. Ten losses in a row still leaves you with about 90% of your capital.
Position size is derived from that risk and your stop distance: position size = (account × risk %) ÷ stop distance %. Leverage only determines how much margin is locked up.
Position size calculator
Max loss if stopped
$50.00
Stop distance
2.00%
Position size
$2,500.00
Leverage needed
0.5x
Keep leverage at or below ~25x so your liquidation price sits well beyond the stop-loss.
Where to place your stop-loss
- Below the most recent swing low for longs, above the swing high for shorts.
- Outside obvious round numbers where many stops cluster.
- Use ATR (average true range) to keep stops wider than normal noise.
- Always well before your liquidation price — a stop that never triggers before liquidation is not a stop.
How to avoid liquidation
1
Use low leverage
At 3x a position needs a ~33% adverse move to liquidate; at 50x just ~2%.
2
Use isolated margin
Contain the damage of one bad trade to that trade's margin.
3
Always set a stop-loss
Your stop should trigger long before the liquidation price.
4
Never add margin to a loser
Adding margin to avoid liquidation usually just increases the loss.
5
Watch funding & news
Extreme funding and major macro events create violent wicks.
Trade with a discount
Sign up on Bybit or Binance with our code for up to 20% off trading fees plus up to a $100 deposit bonus.
Some links are affiliate links. We may earn a commission at no extra cost to you. Bonus terms are set by each exchange and can change.