It’s very common for traders to experience headwinds in their trades. Sometimes, FX Book Forex Broker they get surprised by unexpected market reversals and their trades go against them. If you’re caught off guard, you’ll probably just kneel down and pray for some sort of a miracle to turn your trades around.
Once you’ve reached your ‘agony limit,’ you close up your trade. As a result, you’re either closing at the top or bottom of the trade.
This situation is not uncommon among traders. If you’ve already experienced all of this, it means that you’ve exposed yourself to more risks that HQBroker Youtube Review your risk tolerance can handle.
How does this happen?
Most of the time, traders just focus on what to trade and when to enter that trade, only barely thinking about the amount of risk that they’re willing to endure during that trade. They also almost always forget to consider the conditions the fulfilment of which will be their signal to exit.
Of course, this attitude isn’t really good for your trades. Though unwittingly, you are sabotaging your trades by exposing yourself to more risks than you can actually handle.
Different traders have different levels of risk tolerance. Those who love dynamic and action-packed trading sessions are typically more risk tolerant than those who are more jittery and don’t want to go toe-to-toe with volatility.
What happens if you take on more risks that you can handle?
You will likely be ruining your own trades. Psychology plays a huge part in this situation. The more risks your take, the more sensitive you become. And since you are more sensitive, you’re also prone to hurried and irrational decisions. Biases also come into play.
However, don’t bog yourself down if you think you’ve made these mistakes before. The market is very unpredictable and it punishes even the old timers.
You can’t control the market, but you can try to control your risks if you want to avoid making such mistakes.
Factors You Need to Consider
Position size. It is very important to check your position sizes because the larger your position size, the more volatility you’ll have to take on. Even if it’s just a single, seemingly inconsequential pip movement, it will have big effects.
You will be compelled to focus more on not making a dent in your account rather than on executing your plan flawlessly.
It’s better to start small, and then work your way up toward bigger position sizes.
Holding Period. Basically, the longer your hold on to your trades, the more volatility you’ll have to endure. Also, a longer holding period is equal can translate to larger position size. This is because the length of time exposes a trade to wider range of price movements.
Stop loss orders. A stop loss order is a very effective tool to ensure that you won’t lose more than you are willing to lose. However, many traders still use it incorrectly or refuse to use it at all.
Make sure that your stop loss is not too tight and too wide, and that it fits your trading personality. Remember that most of the time, appearing in the market the next day and being able to trade is more important than one-hit jackpots.
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