Risk tolerance is how much of a loss you’re willing to take. “With no risk, comes no reward.” Have you heard this saying before? Keep in mind, it goes both ways, because the greater the risk comes the greater the potential for losing money. Risk tolerance defines your ability to withstand losses when things don’t go exactly as planned.
One really common trading discussion amongst traders is how much a trader should risk per trade. A lot of them go by the standard 1-2% while sometimes, it's more aggressively recommended risking as much as 5%. Those who have more foreign exchange experience tend to be more aggressive, while those who are beginning their journey or have limited experience usually are more reserved with both risk and profitability. This is not how it always works out, since too many new beginner traders get caught up in the prospect of quick and easy profits. And with limited experience and education, they usually end up getting more risk then they can handle.
Beginner traders need proper education from a group of experienced traders such as The Apiary Fund, who can help guide you through risk levels that are appropriate to your trading experience. The issue with risking more money than you’re comfortable with is that the potential of losing money will ruin your trading mindset and prevent you from making it right trading decisions.
Only with experience comes the judgement to ignore placing any revenge trades which will more than likely just double your losses, until you ruin or blow up your account. So how do you know how aggressive of a trader you are and should be? The Apiary Fund reviews this regularly. Factors include: your lifestyle, another source of income besides trading, or anxiety or fear to trade. Capital is important, too, since larger trading accounts can survive bigger positions per trade. Experience: by trading long enough with the right education and the right support behind you, you gain more confidence in your instincts and trading decisions. Your risk tolerance affects every trading decision. If you can find a happy balance, you'll eventually find your way to consistent profitability.