How to develop a trading plan

To create a Good Forex Trading Plan defines your full daily market trading routine & trade consistently.

As a map is to a traveler, so is a trading plan to a Forex trader.

Having a good Forex trading plan helps you to know what to do when certain conditions happen in the market.

It also gives you the courage to over come psychological emotions when trading.

This is because when you write it down, you stay focused on your trading objectives and rules. In return, it helps you to maintain your trading discipline.

Let’s now look at steps to create a good forex trading plan.

steps to create a good forex trading plan

1. Define your trading goal

2. Decide much time can you devote to Forex trading

3. State your start up capital and how much you are willing to risk per trade

4. Write down your trading strategy and describe it in details. It should include;

contents of a Trading strategy 

• The types of analysis tools (fundamental, technical or both)
• Your entry and exit levels & Types of orders to use
• Currency pairs you intend to trade
• The time frames to trade on & Time of day you should/shouldn’t trade
• Number of times to monitor your running trades
• High probability trade, description of what to look for
• The exact conditions that will determine your entry and exit & Any reasons that make your entry invalid
• Reasons that would make your trade a failed trade & What to do when a trade fails.
• External conditions to consider, such as related markets or news events
• Your trade risk reward ratio, how much you risk per trade and size for each trade
• Last but not least, don’t forget to name your strategy

5. Next step to create a good forex trading plan, Add your risk management plan

Contents of Risk management plan

• Risk to reward ratio
• Position sizing
• Amount to risk per trade
• Stop loss and target profits
• When to  cut losses

6. Make/formulate a Trading journal.  Your trading journal contains records of your trade statistics, emotions, etc

7. State how often you have to review your strategy.

This involves, trade entries, trade setup or trading rules, which pair is giving the highest number of set up. Which pair is giving most losses or more profitable.

What is the best time to trade your strategy to mention but a few.

8. Your trading routine.

This tells you what to do before, during and after each trading session.

Pre- Trading Routine.  This may involve; Washing  your face when you wake up, Revise your trading rules and do chart analysis. Next trade.

Post- trading routine; Review your trades every after the end of each trading day.

9. Last but not least, your Trading Rules.

This contains the dos and don’ts when trading.

To trade consistently, you must follow your trading rule and review them more often.

10. Finally a Checklist to gauge your consistency.

Having to create a good forex trading plan requires you to have a checklist to confirm if you are trading to plan. This checks and improves your discipline

 Why Trading discipline is important in forex trading

If for instance , Let’s say no eating pizza for the whole month.

Goal – working on weight loss.

Would you say no when your best friend surprised you with your best pizza?. Or you would just tell yourself to starve for next three days but grab this one.

It doesn’t work that way.  Man! Just say ,No! That’s how far personal discipline can go.

You must follow your rules and respect them.

If you keep telling yourself to break the rules today or give yourself this only chance. It will not work out in the long run!

When you Trade outside the plan

Out of boundary things appear attractive and convincing.

The day you break your rules is when you get the best yield you never got while following rules.  Now your mind will start playing tricks on you.

Some how you will get convinced that the same opportunity is likely to happen again and you will find yourself with no choice but violet the rules again.

Remember,

You don’t know how much effect it may cause in case the trade goes wrong. You are just trading outside your trading plan.

It may cause you a very big draw down in that it may be hard to recover your trading capital even if you get several wins.

When you trade according to plan

Trading discipline keeps you on a straight trading path. It will not only improve your winning rate but also your level of confidence in the market.

Do a self-study first before making any rules. See what matches your personality, take only that.

Reading all the books, mastering all the strategies and learning all the rules doesn’t make you a profitable trader.

 Your need to understand your psychology and personality too.  Then try to relate the two with what you learnt and extract a trading plan.

Following your trading plan is what will make you a consistent profitable trader.

Above all, your trading plan should reflect the kind of a trader you are/ personality

why Trade your plan.

When you trade your plan you are able to know when to enter the trade. What to do while monitoring an open trade.

How and when to cut your losses in case a trade fails. How and where to exit a trade.

You can do that by writing it down under your plan or systemize it so that it works out automatically according to your set instructions.

Only a trading plan will enable you to take the right actions while trading.

To trade your plan is to do the same thing over and over again. This gives you a chance to overcome your fears and develop your confidence.

With this kind of experience you will be able to identify your common mistakes and get rid of them.

In addition, a trading plan will teach you how to deal with emotions in times when trades don’t go as expected.

It is so unfortunate that most of the traders try to make trading plans but never look at them to trade.

Mean while some traders don’t write their trading plans at all. They carry their plans within their heads.They just trade randomly thinking rules are kind of limitations to a lot of opportunities in the market.

A trading plan is very important because when followed it leads to trading consistently.

Last but not least, trading with a plan helps you to keep honest with yourself.

So write it somewhere and read it every time you plan to get in the market and trade only that.