Working Out Your Pain Threshold

Filed under: Learn Forex Trading |

Picture 2One thing that you must do when setting up your forex trading account for 2013 is to work out what your threshold for pain is. In a demo account, this is not an issue at all, but in a real live trading account funded with real money; this suddenly becomes a major factor. You need to address questions such as:

 

At what point would losing money become really painful and affect your mood and daily life?

 

What has been your historical largest drawdown in the past and how much would this equate to in real money terms based on your chosen risk levels?

 

If you experienced a drawdown right at the beginning of the trading year, at what point would you have to stop trading real money and go back to a demo account?

 

Can you really handle losing X amount of money?

 

These are all pertinent and important questions that every trader has to ask themselves. If you don’t do this in advance, then you will have to make emotional decisions and analyses further down the line. It is much better to be prepared for any eventually.

 

What we really should be doing as traders right now is to make a plan for the whole of 2013, and to stick to it no matter what. If there is any chance that we will deviate from this plan if things start to get sticky, then it probably means that our risk levels are too high, and we should rethink those levels. Most beginner traders chop and change their system and risk levels whenever things get sticky, and this tends to be the reason why they are not profitable in the long term. They lower their risk after a bad period, and higher their risk levels after a good period. Hence, small profits are made during good periods and large losses are made during bad periods. This is not a good way to trade, so make sure that you get your trading plan right this year – and just as importantly, try to stick to it!

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>