Understanding and using a smart drawdown level can help stop you from blowing your account or putting huge chunks in it.
You may decide that if you lose 25% of your account, it is time to take a break and work out what is going wrong. You may decide to move back to a demo account to find what errors you are making before moving back to your live account.
Having a drawdown level set where you will have a break can help you have a clear rule set around when it’s time to pause risking real money.
#3: Create a Ruleset for How You Take Profit and Use Your Stop Loss
Many traders have clear rules around what trades they will take, but they don’t have clear stop loss and take profit rules.
You only win or lose money when you close your trade, so it is crucial you have a clear rule set that outlines how you take profit or cut your losses short.
This ruleset can help you minimize your losses and take advantage of the larger winners.
#4: Create a Money Management Plan and Follow it
The best trading plan will be written down with a clear rule set that is easy for you to follow.
Your money management plan should include rules around;
- How much leverage you use.
- How much you risk in percentage or money terms.
- What your acceptable account drawdown is.
- What minimum risk-reward you will try to achieve for each trade.
- How you will use correlation.
- How you will set your take profit and stop-loss levels.
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