The 3-5-7 Rule in Trading: What It Means and How It Compares to the 1-2-3 Rule

What is the 3-5-7 rule in trading?

Short answer: The 3-5-7 rule is an informal risk guideline. It caps the risk on one trade at 3% of your account, keeps total risk on all open trades at or below 5%, and aims for winners of at least 7%, one of four readings of the 7. That 3% is triple the 1% IG Academy gives as a guide.

Momentum teaches a stricter rule, the 1-2-3 rule: 1% per trade, at least 2:1 reward to risk, and stop trading at 3 losses.

If you searched for the 3-5-7 rule in interior design, that one has nothing to do with trading.

Where does the 3-5-7 rule come from?

Nobody official wrote it. A securities attorney at Kurta Law says the rule "is not an actual SEC rule or FINRA regulation." Edge Forex agrees: "It isn’t issued by a regulator or a broker, and you won’t find it in any official trading standard."

There's no known author, book or exchange behind it either. It spread through broker and trading-education blogs, and each one tells it a little differently. Yash Shah's explainer sums it up: "There is no single official 3-5-7 rule."

What does each number in the 3-5-7 rule mean?

The 3: risk per trade

The 3 limits how much you can lose on one trade. MetroTrade's version: the rule "limits single-trade risk to 3% of your account." On a $10,000 account, that's $300.

Here's the part most people get wrong. Risk is not the size of the position. CoinSwitch defines it correctly: "Risk means the distance between entry and stop-loss multiplied by position size." A big position with a tight stop can risk less than a small position with a wide one. If you don't know where your stop is, you can't know your risk. The stop-loss guide covers how stops work and why a fast stock can fill you below your stop price.

The 5: total open risk

The 5 caps the risk on everything you have open at once. CoinSwitch phrases it as "Limit exposure to 5% of capital across all open positions."

Notice what that does to the 3. Two trades at the full 3% put 6% of the account at risk, which already breaks the rule's own 5% cap. So with one full-size trade on, any second trade has to be smaller.

The 5 also has a hidden trap. Two positions that move together behave like one big position. MetroTrade calls stacking correlated trades "one of the most common ways the 5% rule gets violated in practice." In small caps, the classic version is two stocks running in the same sympathy move. If the leader fails, both stops tend to get hit together.

The 7: the number nobody agrees on

The 7 is where the sources split. One version is a profit target, and MetroTrade spells out the math. "If you're risking 3% on a trade, you should target at least 7% on the winning side. This creates a risk-to-reward ratio of roughly 2.3:1." Other sources read the same number very differently.

What does the 7 mean? Four readings

Look at how far apart those are. One reading asks for winners barely bigger than losers. Another asks for winners seven times bigger, and even the source that uses it warns, "A 7:1 target is hard to find consistently." The fourth isn't about profit at all. LevelFields reads it as "No more than 7% of your entire portfolio exposed to market risk at any given time."

A few other things also get called 3-5-7. QuantAI describes a "target-and-stop version" that turns the numbers into trade settings, and a "3-5-7 day swing count" that is a timing idea. Neither is an account risk limit.

None of these readings is the correct one. If you use the rule, pick one reading, write it down and keep it. And keep in mind that any reward-to-risk target describes the trades you take. It doesn't make a strategy profitable on its own.

How do you size a position with the 3-5-7 rule?

The math is the same under any risk rule. Momentum's risk management guide puts it in one line: "Position Size = (Account Risk $) ÷ (Risk Per Share)."

Charles Schwab's trade-plan guide works it the same way, risking $750 with a $10 stop: "$750 / $10 = 75 shares."

Trade 1: one position

Say you have a $10,000 account. A stock sets up with an entry at $50 and a stop at $48, so you risk $2 per share.

• Under the 3-5-7 rule, 3% is $300. $300 ÷ $2 = 150 shares.
• Under the 1-2-3 rule, 1% is $100. $100 ÷ $2 = 50 shares.

Same stock, same stop, three times the size. If the stop is hit, the first trader loses $300 and the second loses $100.

One more line from Momentum's first-account guide is worth keeping: "If the math gives you more shares than you can afford, skip the trade."

Trade 2: where the 5% cap kicks in

Now trade 1 is still open with its full 3% at risk, and a second stock sets up, also with a $2 stop.

• Sizing it at the full 3% would put 6% of the account at risk. That breaks the 5% cap.
• To stay inside 5%, trade 2 can risk at most 2% of the account. At a $2 stop, that's 100 shares.
• Under the 1-2-3 rule, two open trades at 1% each put 2% of the account at risk in total.

And if trade 2 is a sympathy play on the same move as trade 1, count both as one position. Forexop's working rule for forex applies here too: "Count trades on correlated pairs as one position."

Common mistakes with the 3-5-7 rule

1. Measuring risk by position size. Risk is entry minus stop, times shares. A small position with no stop can still lose far more than you planned.
2. Treating 3% as a safe number. 3% is the most the rule allows on one trade, and even Yash Shah's explainer of the rule calls it "an upper bound, not a target." IG Academy's guide figure is 1% (more on that below).
3. Counting correlated trades separately. Two stocks in the same sympathy move are one bet with two tickets.
4. Switching readings of the 7 trade by trade. If a trade only works under the loosest reading, it doesn't meet your rule.
5. Moving the stop after sizing. Your share count was built on that stop. Widen it and your risk grows past the number you planned.
6. Trading on after a run of losses. The common version of the 3-5-7 rule has no daily stop, so nothing in it tells you when to walk away.

How does the 3-5-7 rule compare to the 1-2-3 rule?

The 1-2-3 rule is the one Momentum teaches. As the trading room page states it: "risk no more than 1% of your account on a single trade. Do not enter without a 2:1 R/R. Stop trading at 3 losses."

The biggest gap is the first row. In Kev's words: "My ceiling for a single trade is 1% of the account." His posts also add a daily max loss on top of the 3-loss stop: "set it before the open, for example three times your per-trade risk, and close the platform when you hit it." The 3-5-7 rule allows three times as much per trade and, in its common version, has no daily limit.

The 3-loss stop matters more than it looks. A losing streak is when rules are hardest to follow, and a hard stop keeps a bad run from turning into a revenge trade.

The 3-5-7 rule does have one thing the 1-2-3 rule leaves out: an explicit cap on combined open risk. If you hold more than one position at a time, counting your total risk is a good habit under any rule.

Why 1% and not 3%?

Because 3% sits above the per-trade figures Schwab and IG give as guides. Charles Schwab's trade-plan guide works its own example at 0.5% of the portfolio. IG Academy: "many traders wouldn’t risk more than 1% of their account equity on a single trade." IG's 5% is a different kind of number: an outer limit, "at no time should you risk more than 5% on any given idea."

Forexop simulated one system at several risk levels. At 3% per trade, it found "a typical worst drawdown of 34% in 200 trades."

DayTrading.com describes 3% more kindly. The losing-streak math below shows why the lower figures matter.

How fast does a losing streak add up at 3% vs 1%?

Every trader hits losing streaks. Here's what one does to a $10,000 account at each risk level. The table is computed, and it assumes fixed-fraction sizing: each loss is the stated share of your current balance, so the dollar risk shrinks a little after every loss.

At 3%, it takes about 23 straight losses to cut the account in half. At 1%, it takes about 69. (If you risk a fixed $100 that never shrinks, it's exactly 50.)

The last column is what it costs you. As InvestmentNews puts it, "Once a portfolio falls, each percentage point of loss applies to a smaller base." Its example: "A 50 percent drawdown needs a 100 percent gain just to return to the prior peak." Ten straight losses cost 26.3% of the account at 3%, and getting back to even then takes a 35.6% gain. At 1%, the same streak costs 9.6% and takes about a 10.6% gain.

What the 3-5-7 rule leaves out

The rule caps each trade and caps the total. Here's what it doesn't cover.

• No losing-streak stop. The common version never tells you to stop trading after a string of losses.
• No settled meaning for the 7. Two traders can both "follow the 3-5-7 rule" and hold very different standards for a trade.
• No guidance on the stop itself. The rule tells you how much to risk. Where your stop belongs comes from the setup.
• A per-trade number that's high. At 3%, ten straight losses cost 26.3% of the account.

The 1-2-3 rule covers the first and last gaps: 1% per trade, at least 2:1 before you enter and a stop at 3 losses.

Frequently asked questions

Is the 3-5-7 rule good for beginners?

Not at 3% per trade. That is three times the 1% IG Academy gives as its guide, and three straight losses at 3% cost 8.7% of the account against 3.0% at 1%. Use 1% per trade, the figure in the 1-2-3 rule.

Is 3% risk per trade too much?

Yes. IG Academy's guide figure is 1%, Schwab's worked example uses 0.5%, and the math is unforgiving: ten straight losses at 3% cost 26.3% of the account, against 9.6% at 1%.

How do you calculate position size with the 3-5-7 rule?

Divide your dollar risk by your risk per share. On a $10,000 account at 3%, a trade with a $2 stop is $300 ÷ $2 = 150 shares. At 1%, it's $100 ÷ $2 = 50 shares. Then check the total: everything you have open should stay at or under 5% combined.

Does the 3-5-7 rule work for day trading?

Only partly. The 5% cap counts the trades you have open at the same time, so once a losing trade closes, the next one can risk another 3%. Five straight 3% losses cost 14.1% of the account. The 1-2-3 rule has you stop trading at 3 losses, which at 1% per trade is 3.0% of the account.

What is the 3-6-9 rule in trading?

It has no settled meaning. Forexop describes one version that watches the 3rd, 6th and 9th candles of the first trading hour, and notes it "isn't a risk rule." Edge Forex reads it differently and says it is "less standardized than the 3-5-7 rule."

What is the 90% rule in trading?

It's the saying that 90% of traders lose 90% of their money in 90 days. There's no known study behind it. Momentum's post on what percentage of day traders make money looked for one: "We could find no primary source for the 90% figure."

Is $25,000 still required to day trade?

Not under FINRA's new intraday margin rules. FINRA says "There’s no $25,000 minimum equity requirement for day trading," with the change effective June 4, 2026. Brokers that need more time can keep the old rule until October 20, 2027, so check which rules your broker applies. Trading on margin still needs at least $2,000 in equity. The details are in the PDT rule is gone.

See the 1-2-3 rule used live

Every trading morning Kev streams his screen and mic in the Momentum trading room, and he calls out his entry and his stop as he takes them. Treat it as teaching, not trades to copy. Membership includes the live stream and its recordings, the Momentum Scanner, the Momentum Journal and the nightly and pre-market watchlists. You can start with a 7-day free trial. Cancel anytime.

This content is for educational purposes only and is not financial advice. Trading involves significant risk and may not be suitable for all traders.