What Is the 3-5-7 Rule in Trading?

If you’ve searched “what is the 3-5-7 rule in trading?”, you’re probably looking for a simple way to control risk without turning your trading into a math PhD.

The good news: the 3-5-7 rule is exactly that—a straightforward risk management framework that tells you:

• How much to risk per trade
• How much risk to take across all open positions
• What kind of profit vs. loss profile your strategy should aim for

In this guide, we’ll break down the rule, show how to apply it step by step, and explain how a trading journal like GASPNTRADER can help you actually stick to it in real markets.

What Is the 3-5-7 Rule in Trading?

The 3-5-7 rule in trading is a risk management rule of thumb. In its most common form it says:

• 3% – Risk no more than 3% of your trading capital on any single trade.
• 5% – Keep your total risk across all open trades around 5% of your account.
• 7% – Aim for winners that are roughly 7% larger than your average losses, or at least a favorable reward-to-risk ratio (for example 2:1 or better).

Some educators and platforms use a variation where 7% refers to total portfolio exposure rather than payoff, but the core idea is the same: cap risk, limit exposure, and push your winners to do more work than your losers.

The 3-5-7 rule doesn’t guarantee profits. What it does is give you a clear structure so that one or two bad trades don’t blow up your account.

Breaking Down the 3-5-7 Rule

The “3” — Max 3% Risk Per Trade

The 3% rule says:

On any single trade, the maximum you are willing to lose is 3% of your account.

If your account is $10,000:

• 3% of $10,000 = $300
• That $300 is your max loss on one trade, not your position size.

How to translate 3% into position size

1. Decide where your stop-loss goes (based on the chart, not your feelings).
2. Measure the distance between entry and stop in dollars (per share, per coin, per contract).
3. Use this logic: Position size = (Account size × 0.03) ÷ (Entry price − Stop price)

Example:

• Account: $10,000
• Max risk (3%): $300
• Long at $50 with a stop at $47 → risk per share = $3

Position size = 300 ÷ 3 = 100 shares

If that size feels too big? You can risk less than 3%. The rule is a ceiling, not a requirement.

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The “5” — Around 5% Total Risk Across All Open Trades

The 5% rule is about portfolio-level risk:

Across all open positions, your combined risk shouldn’t be much more than 5% of your account.

With $10,000:

• 5% total risk = $500
• That $500 is the sum of max losses on all open trades if they all hit their stops.

Example portfolio:

• Trade A: risk $150
• Trade B: risk $100
• Trade C: risk $250

Total risk = $150 + $100 + $250 = $500 (5% of $10,000) → within the rule.

If you open a new trade that would push total planned loss over $500, you either:

• Skip the new trade, or
• Reduce size on other positions to free up risk.

This keeps you from:

• Having too many correlated trades (e.g. all tech stocks, all altcoins).
• Leveraging into one narrative so hard that one bad day hurts your entire equity curve.

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The “7” — Make Sure Winners Outgrow Losers

The 7% part is usually described as a profit vs. loss benchmark:

On average, your winning trades should be meaningfully larger (roughly “7% more” or a clearly positive reward-to-risk ratio) than your losing trades.

In practice, this often translates into:

• Target reward-to-risk (R:R) of at least 2:1
• Or ensuring that your average winner > average loser

This matters because your long-term profitability depends on:

• Win rate, and
• Payoff ratio (average win vs average loss)

You can be profitable even with a modest win rate if your winners are big enough.

Simple expectancy check

Use the expectancy formula:

Expectancy = WinRate × AvgWin − (1 − WinRate) × AvgLoss

Example:

• Win rate = 45%
• Average win = +$220
• Average loss = −$140

Expectancy = 0.45 × 220 − 0.55 × 140 = 99 − 77 = +$22 per trade

The “7” in the 3-5-7 rule nudges you to engineer that positive expectancy instead of just chasing a high win rate.

How to Apply the 3-5-7 Rule Step by Step

Step 1: Set Your Risk Parameters

• Write down your account size (e.g. $3,000, $10,000, $50,000).
• Calculate:
  • Max risk per trade = Account × 3%
  • Max total portfolio risk = Account × 5%

You can go more conservative (for example 1–2% per trade, 3–4% total) if you’re a beginner or trading very volatile assets.

Step 2: Define Entries and Stops First

Before thinking of position size, define:

• Entry level – where the setup actually triggers
• Stop-loss – where your idea is proven wrong
• Invalidation logic – what conditions would tell you “this trade is over”

Only after that do you calculate how many units you can afford to trade under the 3% risk cap.

Step 3: Calculate Position Size Using the 3% Rule

For every trade:

1. Compute dollar risk per unit (entry minus stop).
2. Divide your max dollar risk (3% of account) by that per-unit risk.
3. Round down to a position size that your broker or exchange allows.

If the resulting position is too small to be worth it (e.g. fees eat it up), the rule is telling you: this setup doesn’t fit your account and risk level.

Step 4: Check Portfolio-Level Risk (5%)

Before you send any new order:

• Add up the max losses for all open trades plus the new one.
• If the sum is greater than your 5% cap, either:
  • Reduce size,
  • Close something, or
  • Skip the new trade.

This is especially important if your trades are correlated (e.g. BTC, ETH, and several altcoins that all move together).

Step 5: Set Targets That Support the “7” Component

You don’t need a literal 7% profit on every trade. What you do need is a healthy payoff ratio.

Practical ways to implement the “7” idea:

• Aim for at least 2R on most setups
  • If you risk $100 (1R), target at least $200 profit on a full take-profit.
• Use partial take-profit plus a trailing stop to lock in big winners.
• Avoid strategies where the average loss > average win unless win rate is extremely high (and even then, be careful).

Step 6: Journal and Review (This Is Where GASPNTRADER Helps)

The 3-5-7 rule only works if you actually track what you’re doing.

With a trading journal like GASPNTRADER, you can:

• Auto-import trades from your broker/crypto exchange and tag them.
• See risk per trade and total exposure at a glance.
• Track win rate, average R, payoff ratio, and drawdown curves over time.
• Filter for rule violations (for example, trades where you risked more than 3%).

That’s how you move from “I think I’m following the rule” to “I know I’m following it—here’s the data.”

Benefits and Limitations of the 3-5-7 Rule

Think of it as a starting framework, not a strict law carved in stone.

Common Mistakes When Using the 3-5-7 Rule

• Treating 3% as a minimum instead of a maximum
• Ignoring correlation (e.g. 5 different AI stocks that all move together)
• Moving stops farther away to keep risk under 3% instead of reducing size
• Not logging real risk (trading without a journal)
• Focusing only on win rate, ignoring payoff ratio and drawdown
• Abandoning the rule after a couple of losing trades instead of reviewing and adjusting calmly

Key Takeaways

• The 3-5-7 rule in trading is a simple, percentage-based framework to manage risk:
  • 3% max risk per trade
  • 5% total risk across all open positions
  • 7% focus on winners meaningfully outgrowing losers
• It won’t pick trades for you, but it keeps you in the game while you build skill.
• Its real power comes when you track your trades, measure your behavior, and refine your process—something you can do easily with a structured trading journal like GASPNTRADER.

Use the 3-5-7 rule as your risk compass, not your prison. Start small, stay consistent, and let your data tell you how to adapt it over time.