Developing a forex trading plan and always following it will help you to become a successful trader. Being successful in forex trading has a lot to do with self-discipline, controlling your emotions and always trading objectively. Following the rules of your trading plan will help you to keep your calm and be relaxed while trading.
Developing your personal forex trading plan is not hard, you just need to follow a few tips.
Before taking any decision related to your trading plan you need to decide what type of trader you are, whether you like scalping, day trading or long term trading:
- Scalper: holds positions from a few minutes to a few hours.
- Day trader: holds positions for less than one day.
- Swing trader: holds positions from a few hours to a few days.
- Intermediate trader: holds positions from a few days to a few weeks.
- Long term trader: holds positions for at least a day and, if possible, to even years.
- Position trader: holds positions as long as needed.
New traders will need some time until they find the type which better fits their personality.
You should never risk more than 2% of your portfolio on a single trade and more than 5% on a given day. If it happens to lose that amount you should stop trading and stay out that day.
You should have realistic goals and set realistic risk/reward ratios. Usually traders will open a position only if the potential profit is at least a few times greater than the risk. You should have periodic profit goals and re-assess them on a regular basis.
Your entry strategy should be simple enough to allow you to make quick decisions but complicated enough to be effective. Whenever the entry conditions are met you should open a trade.
The exit strategy is far more important than the entry strategy. Before you enter a trade you should know exactly when you will exit. You should always have a STOP LOSS level set in case that you are wrong and the trade goes against you. Once set, never move the STOP LOSS. If it happens to get hit you should accept the loss and get over it.
Every trade you open should have a TAKE PROFIT target at which you can partially close the trade and move the STOP LOSS accordingly.
Analyze every trade, winner or loser, write down its specific details, why you opened the position, its entry & exit levels, important price levels and any other information you think may be important. You should learn from all your trades and always try to improve your trading skills.
Developing a profitable trading plan will require a bit more research and a lot of testing. Always following your trading plan will require a lot of discipline and it may be harder than you may think. With time you will notice that using a trading plan will make your trading decisions more objective and less emotional.
Remember, to be a successful forex trader, you should develop a forex trading plan and always follow its rules.