The main difference between making money and losing is trading with or without a plan.
It is essential to know that a trading plan in the forex market refers to the organized method of effecting a trading system that is developed but centered on the market analysis, while also considering the risk management.
Even though a trading plan is well-structured and efficient, it won’t work unless it is executed. Forex traders that a well-organized trading plan is the once that earn lots of profits daily.
There may even get more losing trades than winning once, but still get lots of profits, due to the fact that they are orderly and follow their methods.
Why every trader needs a trading plan
Trading is more straightforward and easy when you have a plan. This is because you follow a defined rule and become disciplined in your choices and way of trading.
It is essential to know that the most successful traders out there trade to a plan, and they often have other plans working together to achieve one goal – to make profits.
A trading plan reduces stress, which improves your health. A trading plan will relieve you of the headache of trying to make trades to make profits.
Due to the fact that you already have a defined plan that works for you, then effecting this plan to earn daily profits will be easy for you.
Having a trading plan helps prevent irrational behavior even when the market is going in the wrong direction.
Because the same plan has worked for you when the market is down, you will still retain your discipline and make bad decisions that will result in further losses.
There are lots of benefits to having a trading plan. Hence, every trader should know that a trading plan is a work in progress.
How to develop a trading plan
Before coming up with a forex trading plan, it is essential to make research and findings. After then can you build a plan according to your own needs.
However, the type of tools, applications, type of chart, drawing tools, and other strategies that you have picked are the keys to building an effecting a trading plan.
After making out your plan, it is necessary to test it to see how effective it is, even after you have started using it. Checking your project regularly will help you gauge your success by know what works for you.
At this point, you can add and remove some basis that may not be in line with your plan.
Furthermore, you will need to ask yourself some vital questions that will help you know if you are on track with your plan. Some of these questions are,
- Why am I trading?
- What is my motivation?
- What are my strengths and weaknesses?
- Will the amount of money I have to trade help me achieve my goals?
Hence, with your trading plan, you will need to align some risk management tips to it, for you to be successful. Such management tips are (but not limited to),
- Investing only with your spare money
- Knowing your risk tolerance level
- Setting your risk ratio reward to a minimum of 1:3
- Setting your timing
- Regulating your risk per trade
- Considering currency correlations