If you are new to Forex trading you have probably read a lot about how you should have a great trading plan. What you might not have heard is how to go about making one.
If this is the situation you find yourself in, this blog post is for you.
Given below are the main steps towards creating a trading plan.
Remember that if after you start implementing your plan you find out that there are some things that aren’t working for you, don’t worry. Correct and move on. Don’t take faults with a plan personally.
What is a trading plan?
A trading plan is a complete trading setup that a trader creates for themselves in order to trade more consistently and to be more disciplined.
Let’s take a look at the main parts of a complete trading plan.
This is the first part and one that you have probably read about the most if you are a new trader. In this blog we are not going into the list of strategies that you can chose from. If you want to get introduced to the commonly used strategies you can read about them here.
Find one that you think you understand well and which makes the most sense to you as a profitable trading strategy.
Select the indicators that you will need to use for it and make sure you understand their use well.
2. Risk Management
The next part of your trading plan is effective risk management. You need to figure out which currency pairs are the safest to trade as frequently as you plan to be trading.
Also, see what style of trading you will be doing. Will you be a scalper, day trader, swing trader or position trader?
Choose your pairs, hours, and risk per trade accordingly.
3. Trading Criteria and Setup
Here is where you decide where you are going to set your stop loss and profit levels.
It is better to be consistent with the levels you choose since it will make the next step (analysis) easier. So decide your profit and loss levels in terms of pips roughly so that when executing the trade you are not risking more than you can afford.
4. Record and Analysis
Finally, you should record your trades by journaling, on a daily basis. Record how much you lost and made while also briefly analysing why you think you lost a trade.
This is a very useful practice and will help you avoid making the same mistakes over and over.
It is also a great way to objectively analyse your performance so that you can figure out where you need to improve.
We hope this provided you some insight into the steps you need to take in order to make a comprehensive trading plan.
You will not get it right on the first go so don’t put that kind of pressure on it. Everyone learns from their mistakes and if you keep at it, you will too.