A trading plan is one of the key elements that forex traders need to become successful. It is an organized approach that the trader uses to execute several trading systems based on the market outlook and analysis. A disciplined approach can guarantee many years of successful trading provided that you follow it to the end. The key benefits of a trading plan are:
- It allows you to gauge your performance out for any problems and find solutions to them.
- It is easy to trade with a plan than when you don’t have it
- The plan reduces stress and these results to better health. It also prevents the trader from having psychological issues
- The plan can reduce bad trades if it strictly adhered to
- It instills a substantial measure of trading discipline since most gamblers lack the plan and the discipline.
- Allows investors to get out of their comfort zones in the process of following it
Developing a trading plan
- Write down the plan
This is the initial step. Don’t continue keeping the trading plan in your head, as the chances are high that the ideas won’t help you. Write them down so that you can use them as a future reference. Make sure that you include the following in your plans:
- Strategy name– be creative and come up with a good name for your strategy. If you have more than one strategy, list them down in order of their importance. It will be easy for you to make changes on the ones you intend to drop and to mark on what you have achieved.
- Currency pairs– after strategies, list down the currency pairs that you have tested with your forex trading account UK. It’s however worth noting that not all the strategies will work on your specific currency pairs, and you should, therefore, be choosy.
- Indicators– note down the types of indicators you will be using in your trading. Also, remember to record the specific settings you are using.
- Entry signal– how are you planning to enter the market
This might seem easy at the start, but it’s quite complex. Don’t forget the following in your entry plan:
- The specific conditions which determine your entry
- The reasons which might make your entry invalid
- The external consider which you cannot ignore- such as news events
- The times of the day which you cannot trade
After that, you can also write down your stop loss, the specific percentage of risk per trade, and when you intend to take partial profits, your next position and whether you should re-enter if you are stopped.
- Test your trading plan
Writing down your plans and goals do not end your trading plan process. You will still need to put it into practice to find out if it’s working or not. Remember to avoid using real money while still in the testing stage. This is because things might turn for the worse and lose all your hard earned investments. If you backtest it and everything goals as planned, forward test it to find out if there are any differences between the live market conditions and the backtesting.
- Rework on your plan
The results you get after the testing will help you know if you can now get into live trading with the plan, or work on some aspects. If nothing worked out, be sure to review your strategies again so that you dint incur losses once you start serious trading.
- Track your results
A trading plan is a process, and you should, therefore, continue tracking your performance after the first attempt. If your results don’t impress you, don’t hesitate to exit the market! However, if all goes well, continue to make possible improvements until you reap maximum profits in the field.
It can be hard to come up with an accurate trading plan, but you shouldn’t give up on it. This is because it will give you a direction on what you should do, and also help to keep you within your financial budgets.