Its said, "Knowing risk tolerance level is the key to success in trading". Let me explain this with an example. Refer the above chart. Two traders A and B saw double top formation and decided to go short. Trader A used leverage above his risk tolerance level. Trader B took trade as per his money management.
Both traders went short. After few minutes price start to retrace a little. Trader A got emotional. He have risked more and if the trade hit stop loss, his loss will be more. He got panicked. After some time price started to fall. Since trader A was panicked he booked small profit and exit the trade thinking the price will go up again. After few minutes price reached the target and trader A was sad.
Trader B was casual as his risked amount was normal and exit his trade taking full profit. Both traders had same analysis and traded with same plan but did not get same profit. To avoid such mistake, one should remember that, trading is a process. One trade wont make you rich. To carry on the process of trading we should know our risk tolerance level and follow money management.
Both traders went short. After few minutes price start to retrace a little. Trader A got emotional. He have risked more and if the trade hit stop loss, his loss will be more. He got panicked. After some time price started to fall. Since trader A was panicked he booked small profit and exit the trade thinking the price will go up again. After few minutes price reached the target and trader A was sad.
Trader B was casual as his risked amount was normal and exit his trade taking full profit. Both traders had same analysis and traded with same plan but did not get same profit. To avoid such mistake, one should remember that, trading is a process. One trade wont make you rich. To carry on the process of trading we should know our risk tolerance level and follow money management.
