In the first installment in a series, we look at some of the basic requirements to set up a proper trading plan.
Whilst trading on the forex markets is not something to be taken lightly, the actual organization of it all is not that tough to understand. Being organized always helps so if you have a clear plan on how to go about doing this whilst also letting emotions get out of the picture.
A structure plan – like building a business
Trading is a volatile and unpredictable pastime, so if you don’t set out a proper plan, you’ve got no method of gauging your success. Incidentally, research has shown that most people do not use a plan to trade and that leads to losing money since emotions begin to creep in. When you trade with a plan, picture yourself as you build a business. You can take a step back and view each situation in a subjective manner. You also have to get out of a winner/loser mentality as the important thing is to be profitable in an overall manner.
Why a trading plan is important for eventual success
As in most adventures, it’s important to begin at the end and work your way backwards to create a plan and eventually decide what kind of trader you want to be. The most successful traders trade with a plan. They may even have several plans that work together. Always write things down. This will help you stay focused on your trading objectives, and the less judgment we have to use the better.
A plan also helps you maintain discipline as a trader. Having a trading plan will not only keep your emotions in check but also help you trade consistently and helps you work towards a goal in your trading strategy.
It is a waste of time and energy if you create your trading plan but then never use it. Make sure you do not make that mistake. Ensure you do not waste time creating the plan by making sure to follow it before every trade you make.
Many people make the mistake of spending all their time creating a plan, then never actually following it.
Let’s have a look at the key components for a successful trading plan:
- Structure and eventual monetary goals
- Educate yourself on the subject and do your research
- Identify your strategy using fundamental and technical tools
- Amount of money to invest and risk management
- Mechanics of trade, proper documentation and testing of plan.
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How to build a trading plan
First of all, you’ve got to make sure you do your own research and build a plan according to your needs. It’s also important to find confidence in what you know. The tools you have selected for your strategy are key, from the type of chart to the specific drawing tools to even the most elaborate of strategies.
Always test your plan regularly
You should also test your plan at the start to make sure you are on the right track. After you have begun trading, continue testing it regularly. This allows you to measure your success by clearly seeing what works and what does not work. From there you can tweak elements that might be weaker and not contributing to your overall goal.
Stay tuned for the next part of our blog on creating and implementing your successful trading plan.