Don't risk It All On One Play - Risk Management Basics

Swing Trading 101: Mastering the 1% Risk Rule with SOFI

Hey there! If you’ve ever wondered how traders manage risk while chasing gains in stocks like SoFi Technologies (SOFI), you’re in the right place. Today, I’m breaking down the 1% risk rule—a cornerstone of swing trading that keeps your portfolio safe while you aim for profits. Let’s dive in with a real-world example using SOFI, a hot fintech stock that’s been making waves!

What is the 1% Risk Rule?

The 1% risk rule means you never risk more than 1% of your total portfolio on a single trade. It’s not about investing just 1% of your money—it’s about limiting your potential loss to 1% if the trade goes south. This approach protects your capital, especially with volatile stocks like SOFI, which recently jumped 6.57% after killer earnings but also dipped 6.03% post-market.

Why Use the 1% Rule?

• Protect Your Capital: Even 10 losing trades in a row only cost you 10% of your portfolio.
• Stay Flexible: You can take multiple trades without overexposing your account.
• Handle Volatility: SOFI’s wild swings (6–7% daily moves) make risk control a must.

How It Works: SOFI Example

Let’s say you’re swing trading SOFI, which closed at $22.40 after a 7.1% surge on strong Q2 earnings ($854.9M revenue, $97.3M net income). Here’s how to apply the 1% rule.

Example Trade Setup

Portfolio Size: $10,000
Risk Per Trade: 1% = $100
Trade Plan: Buy SOFI at $21.10 (near post-market price), with a stop loss at $20.50 ($0.60 risk per share).
Position Size: $100 ÷ $0.60 = ~166 shares
Investment: 166 × $21.10 = $3,500.60
Outcome:

• If SOFI hits $20.50, you lose $99.60 (~1% of portfolio).
• If SOFI climbs to $23.50, you gain $2.40 × 166 = $398.40 (4% portfolio gain).

Risk/Reward: Risk $0.60 to gain $2.40 (4:1 ratio).

Key Steps to Apply the 1% Rule

1. Know Your Portfolio Size: E.g., $10,000.
2. Set Risk Limit: 1% = $100 per trade.
3. Find Stop Loss: Use technical levels, like $20.50 (below SOFI’s $21.00 support).
4. Calculate Shares: Divide risk by stop loss distance (e.g., $100 ÷ $0.60 = 166 shares).
5. Execute: Buy and set a stop loss to cap your risk.

Common Misunderstandings

• It’s Not 1% Investment: You’re not investing $100 in SOFI—you’re risking $100. Your actual investment could be $3,500 (like above).
• Not Limited to One Stock: You can have multiple trades (SOFI or others), each risking 1%.
• Stop Loss is Crucial: Without a stop loss, you can’t control risk.

Tips for SOFI Swing Trading

SOFI’s high volume (229M vs. 76M average) and price swings make it a swing trader’s dream, but volatility requires caution:

• Watch Support/Resistance: Buy near $21.00 support, target $23.50–$25.11 (52-week high).
• Check Volume: Confirm entries with above-average volume (>80M).
• Use Indicators: RSI cooling to 40–50 or pullbacks to the 50-day moving average signal good entries.
• Monitor News: SOFI’s strong earnings and $3.375B 2025 guidance could drive more upside.

Ready to Trade Smarter?

The 1% risk rule is your shield against big losses and your ticket to staying in the game. With SOFI’s momentum, it’s a great stock to practice this strategy. Set up your trade on TradingView, watch those key levels, and keep your risk tight. Happy trading!

Disclaimer: This is not financial advice. Trading involves risks, and you should consult a financial adviser before making decisions. Data based on SOFI’s performance as of July 29, 2025. Don’t share personal information that can identify you.