Nowadays, any person with access to the internet can open an account with a forex broker and enter a trade; however, very few succeed! The reason is simple: forex trading requires discipline, education, and a plan! While these things sound easy to achieve, reality says otherwise. Going forward we will present you with the key aspects you need to know about a forex trading plan: what it is, how it works, and the benefits it offers.
What is a Trading Plan and How Can Use It?
If you think that the desire to become a forex trader, followed by the registration on an online forex site and placing a trade is a plan; then you’re very wrong. A trading plan needs to be built with your personality at its core and to contain: what/when/how/why needs to be done, rules to manage and minimize risks, a trading system; but most of all, your personal goals! A great trading plan can’t be built overnight, as both mistakes and successes are the ones that teach you and will gradually indicate how to create it. Education and discipline are the other two lucky charms that will bring you profit, and the two of them should be considered as part of your plan.
But how can you use this trading plan and why? You can use it in the heat of the moment when you’re making a decisive move. You can use it to minimize risks and mistakes; as well as to gain experience and discipline – which will eventually lead to profit. Think about all of the apps that work based on a GPS; don’t they help you to reach the desired destination in a timely and easy manner? A trading plan works in the same way; and profit, isn’t that the destination that all forex traders want to reach?
How to Create a Trading Plan
Although you are the one that needs to create the trading plan from scratch, based on your preferences and your personality; there are some general guidelines that you can follow. Before anything else, a very important aspect that can have a crucial impact on your trading success, despite the plan you create, is the forex trading site you will pick. The broker needs to be trustworthy, hence, regulated; to offer you an advanced and intuitive forex platform with all the tools you need; as well as professional assistance.
Here are the general guidelines that you can follow when creating a trading plan:
Set Your Goals
You can’t chase a thing if you don’t know what it is. Before opening a position, always set some realistic goals, like the profit targets and reward ratios. In this way, you will be able to see the potential of that trade, whether it is worth it or not. You can also set goals for an extended period, like a week, a month, or even years.
You need a trading system, which means you need to set rules regarding how/when and why you will enter and exit trades. Given the rapid changes in the market conditions, it’s ideal to prepare two or more trading systems.
Although you can’t fully eliminate risks, there are ways you can minimize them. For example, it’s important to always set a stop-loss order and try to invest only an amount of capital that you can afford to lose. Once again, choosing the right broker might help you when it comes to minimizing risks too.
Before entering a trade, it’s very important to know how the markets are doing and to read the news & events that can drive them. Stay updated about the economic indicators of the countries you are interested in, as they determine the value of the currencies. It’s also indicated and extremely helpful to be one step ahead and know which economic data is due out and when.
Leave Feelings Aside
Forex trading and feelings don’t go hand in hand. It’s better to develop a certain discipline that will push you to make informed and logical decisions.
Monitor your activity
Your trading plan will not be effective and successful from the very beginning. Think of it as a continual draft to which you return from time to time to add and change certain things. When you win a trade, analyze the steps that led to that result and observe what made it successful. Do the same thing with your bad trades.
How to Follow a Trading Plan
Following a trading plan takes time, as it takes a lot of time to create a decent version of it, too. The best way you can follow a plan is to turn it into a habit, a routine. Just like you drink a cup of coffee in the morning, follow the steps of your trading plan before entering a trade. You can also write it down on paper, sticky notes, or on your computer; to remind yourself of the goals you have and the steps to reach them.
The Benefits of a Trading Plan
Trading according to a plan comes with more and greater benefits than trading without one. First of all, you will minimize the chances to put your capital at risk and lose it. Second of all, a trading plan maximizes exponentially your chances to succeed, as you set clear goals and clear objectives. It also makes you more disciplined and encourages you to make educated and informed decisions. Overall, you will gain more experience and ultimately, more profit!
A trading plan doesn’t guarantee success in forex trading, however, success can’t be achieved in online foreign exchange trading without a solid plan. Start creating yours and see it for yourself!
■ Forex trading and planning