Importance of a trading plan in Forex
Every trader should have a trading plan. Some have it, and some might be hearing about it for the first time. Let’s learn some key points with examples that can help you write a trading plan.
1. Force Majeure
Certain actions should be prescribed for the trader to take if the Internet, power, or computer suddenly fails. In such unforeseen cases, the laptop must have a charged battery, a trading terminal, a 3G modem, a VPS server. The contact details of a broker who will always help must be saved on a smartphone or tablet in advance.
2. Control profit and loss.
It needs to mandate a plan of action due to a series of lost or profitable transactions. At this point, it all depends on the risks and trading style of the trader. Here are some examples.
Example # 1: I will quit my intraday trading after I hit 30 pips profit. You don’t need to consider these 30 pips as a daily goal but as a win limit.
Example # 2: I don’t trade all week with five losing days.
Example 3: The loss of 30% of the total deposit is a trading interruption for a whole month.
Example # 4: I will not trade if I hit the 10% profit target in week.
Example # 5: When I trade a currency pair, if I catch three stop-loss, I will stop trading for the day.
3. Strong emotional arousal.
Example # 1: If I feel bad, I won’t go into trading.
Example No. 2: If I am depressed or sleepy, I won’t enter the terminal.
Example 3: Excitement, intense anger, difficulty to focus on, a nervous concussion – I will not trade that day.
4. Difficult trading tactics.
If a trader employs multiple trading strategies, be sure to state in writing where and when they are involved.
Example # 1: If the market has been trending well, you need to employ one strategy, and if you have observed a flat one in Forex, then use a completely different strategy.
5. News background.
Example # 1: I follow the news release in the relevant economic calendar. No transactions will be opened while important news is released.
Example No. 2: Before I enter, I always look at the table for possible settings. I check my assumptions with analytics. In the event of a mismatch, I carefully double-check everything.
6. Long term and short term trading goals.
It is important not to forget the goals you set. You should set an acheivable target. Never go for ambitious targets that let you do overtrading.
Example # 1: Don’t chase a huge win. Be realistic. 5% per month is an acceptable gain. There will be few trades, which means most of them should be reviewed.
Example # 2: I will not risk more than 1% of the deposit on a position.
Example 3: I understand that I can still incur losses by completing the trader’s trading plan daily. Therefore, I only take the amount that I do not regret losing at my own risk.
7. Set and forget.
Example # 1: Once I place the trade with certain stop-loss and take profit, I will close the terminal and won’t look at charts and intervene with my trades.
Bottom line
The forex trading plan needs to be adjusted for you, including certain points that need to be adjusted from time to time. This depends on the trading strategy, the level of risk, as well as money management.
« How to Overcome Fear of Forex Trading? Top 3 problems of forex traders »
