Forex Trading Plan

Forex Trading Plan

Developing a Disciplined

Forex Trading Plan

No matter which trading style you decide to pursue, you need an organized trading plan, or you won’t get very far. The difference between making money and losing money in the forex market can be as simple as trading with a plan or trading without one.

A forex trading plan is an organized approach to executing a trade strategy that you’ve developed based on your market analysis and outlook.

Here are the key components of any forex trading plan

1> Determining position size: How large a position will you take for each trade strategy? Position size is half the equation for determining how much money is at stake in each trade.

2> Deciding where to enter the position: Exactly where will you try to open the desired position? What happens if your entry level is not reached?

3> Setting stop-loss and take-profit levels: Exactly where will you exit the position, both if it’s a winning position (take profit) and if it’s a losing position (stop loss)? Stoploss and take-profit levels are the second half of the equation that determines how much money is at stake in each trade.

That’s it — just three simple components. But it’s amazing how many forex traders, experienced and beginner alike, open positions without ever having fully thought through exactly what their game plan is. Of course, you need to consider numerous finer points when constructing a trading plan, and we focus on them more in the full version of Currency Trading ForDummies.

But for now, we just want to drive home the point that trading without an organized plan is like flying an airplane blindfolded — you may be able to get off the ground, but how will you land?

And no matter how good your trading plan is, it won’t work if you don’t follow it. Sometimes emotions bubble up and distract traders from their trade plans. Other times, an unexpected piece of news or price movement causes traders to abandon their trade strategy in midstream, or midtrade, as the case may be. Either way, when this happens, it’s the
same as never having had a trade plan in the first place.

Developing a forex trade plan and sticking to it are the two main ingredients of trading discipline. If we were to name the one defining characteristic of successful traders, it wouldn’t be technical analysis skill, gut instinct, or aggressiveness — though they’re all important. Nope, it would be trading discipline.

Traders who follow a disciplined approach are the ones who survive year after year and market cycle after market cycle. They can even be wrong more often than right and still make money because they follow a disciplined approach.