Matching Your Forex Trading Risk Tolerance to Your Personality
Before you start forex trading on your demo account you need to consider what your risk tolerance is. Risk tolerance is used to determine your risk management plan and where you are going to be placing your stop loss orders. It is important that you match your risk tolerance to your personality. When you do this you are able to create the best risk management plan for you trading style.
Forex Trading Risk Tolerance Personalities
There are four different risk tolerance personalities that you need to be aware of. When you know what these personalities are you can understand where they fall in the overall risk tolerance ratings. There are two categories to overall risk tolerance and they are unwillingness to take risk and a willingness to take risks.
The Cautious Personality
The first personality that you should know of is the cautious personality. These traders are sensitive to losses and often do not trust the advice they get from others. These traders generally have lower profits that other traders because they may be overly cautious and not trade enough. The risk tolerance of these traders is very low because they do not want to see any losses. This low risk tolerance is also one of the reasons why they do not make large profits.
The Methodical Personality
The second personality you should be aware of is the methodical personality. This trader is very disciplined and will never waiver from their trading plan. These traders will also make all of their trading decisions based on facts that they can prove. The risk tolerance of these traders is also not very high and falls into the unwilling category. The methodical nature of these traders does not allow for some of the uncertainty that comes with risky trading.
The Spontaneous Personality
The third personality you should consider is the spontaneous personality. These traders are more likely to divert from their trading plans and make emotional trades. Of course, they will constantly be second guessing their decisions because they are mainly emotionally made. Most of these traders use herd mentality trading. This personality falls into the willing risk tolerance category. The spontaneous nature of the trader allows them to complete riskier trades without considering the consequences of them.
The Individualist Personality
The last personality type that you should be aware of is the Individualist personality. This trader does use facts to make their trading decisions and very rarely second guess what they are doing. They put a lot of trust into their own research and analysis. These traders generally do not follow herd mentality trading strategies unless they can prove that there is a profit to be made. These traders generally have a high risk tolerance and are very willing to use risks. This is due to their unfailing believe that their analysis of the market is correct. However, a lot of these traders will mix risky trading with very save trading to create the best balance. This is very important and is something that all trading personalities should consider doing.