Selecting the Right Trading Profile for You

There are a number of criteria to consider in determining your trading profile. During the time you are working with a demo account is a great opportunity to try them all, to see which one fits you best. None is right or wrong, but one of them will be the best for you.
  1. How much time can you devote to trading?

    This is really two questions in one. During an average week, how many trading sessions will you have -- and, how long will those sessions be for you? There is a vast difference between trading two or three times a week for five or six hours and trading 8 or 10 times a week for 30 minutes.

    The longer your sessions, the more likely you can be successful at the day or position trader level. The shorter your sessions, the more likely you will flourish at the guerilla or scalper level. This is certainly not in stone, but it is an educated conclusion I have reached after working with dozens of traders over the years.

  2. What is your goal in trading?

    Yes, we all want to make as much money as possible. But are you seeking a few long-term gains or a nice bundle of small profits? You cannot get the former at the scalper level, just as you cannot get the latter at the position level. Obviously, this has to be secondary to the issue of how much time you have to trade, your available time, and the goal you want to match up for you.

  3. What is your pain threshold?

    This is not how much money you can safely invest in FOREX trading, which I discuss in The 30-Trade Campaign Program. When a trade goes against you, when does the heat of the loss affect your judgment? Is it 10 pips? 50 pips? 200 pips? This is difficult to tell off a demo account. It is only when real money is at stake that the heat is on emotionally. This is one of the reasons I recommend moving up lot sizes very slowly; each trader has a different threshold of pain and the only way to find it is to hit it.

Early in my mentoring course, I show students a 1-week chart, depicting prices moving in a trend for more than 1,000 pips. "That is what I want to do!" they exclaim. They do not realize the straight line at 1-week comprises 200 pip price reactions in the wrong direction at 1-hour! They open a mini-account and the first time prices move 50 pips against them, the heat is on.

I discuss this topic more in FOREX: Setting Up Shop and The 30-Trade Campaign Program. But for now, consider whether or not you can stand to weather a 100-to-200-pip loss at that future time when you are trading 10,000 or 100,000 live lot sizes. If not, you need to stay downstream at the scalper level, where individual trader losses will normally and nominally be smaller.

Tip: The pain threshold is a function of lot size and pip risk. If you lose 200 pips trading a 1,000 lot, the monetary damage is $20.00. If you lose 20 pips trading a 10,000 lot, it is the same amount. Relative to your trading profile, the point is this: You cannot rationally hope to gain 500-pip-position profits from a 20-pip risk. The goal is to find a reasonable balance in all of these variables that also works for you.

  1. What feels right to you? This you can learn with a demo account. It is not all facts and numbers. Trading success requires your subconscious mind to have a say and your intuition to work for you.
By Michael Duane Archer
Michael Duane Archer has been an active futures and FOREX trader for more than 35 years. He has worked in various advisory capacities, notably as a commodity trading advisor, registered SEC investment advisor, and branch manager for Heinold of Hawaii. He currently trades FOREX and futures and is involved in several technical analysis research projects.

Copyrighted 2020. Content published with author's permission.

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