Being Accountable for Your Own Trades

Filed under: Learn Forex Trading |

When people are employed to trade for big institutions, there are measures of accountability in place so that their performances are constantly reviewed and they have to explain any unusual drawdowns or dips in performance. There might be a rule in place so that if the account loses a certain percentage in any one month, then for the remainder of that month, their account is frozen and they are put on coffee duty. It is a good motivational strategy so that traders manage their money well.

 

However, for those of us who trade at home, alone (just like Macaulay Culkin!), we have to be accountable for our own trading actions – and this is a little more difficult. Some of the things you can do to make yourself more accountable are the following. First, you could record every single trade that you make and print it out for review at the end of the month. Then you could retrospectively rate each trade that you made once you have become distanced from it and no longer feel any emotion towards it. You also need some strict money management rules. For example, you could decide to never risk more than 1% of your bank on any one trade. I feel that this is a good level that is not too risky, but also not too conservative.

 

With regards to over-trading, the 6% rule suggested by Alexander Elder in his book ‘Come into My Trading Room’ is as good as any. This rule states that you should stop trading if you have a 6% drawdown in any one month. However, this also means that if you have 3% drawdown, and that you have three live trades in play each risking 1%, then you must also stop trading until those trades have been closed. These are all good measures of accountability for the independent trader, and they are issues that we all must consider.

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