If you want to be a consistently profitable forex trader then you MUST have a forex trading plan. Failing to plan your trade is acute to planning to lose money. In the forex trading game, having a trading plan is essential!
In this blog, we will go over the most important sections of a simple forex trading plan. Keep in mind that this post is designed for new traders and is here to just help you get started. As you advance forward in your forex trading career, you should be adding, adapting and evolving your trading plan to match this progression.
Finding and Trading Your Setups
The first thing you should do when creating a simple forex trading plan is decide what pairs you are going to trade and on what time frames you are going to trade them. As each forex currency pair has its own personality and way of moving, specialising in just a few key currencies can be a key advantage you take when attacking the forex market. Just as important are the time frames you choose to trade them on. We know that chart patterns on higher time frame charts are more reliable than on the intraday charts, but they take a lot more patience to wait and execute at the right time. It’s all about finding your balance.
Once you have decided on which pairs and time frames you are going to trade your strategy on, you then move to the forex chart patterns or technical indicators that will signal it is time to enter and exit a trade. There are literally thousands of different chart patterns and indicator setups that you could use as signals to enter the market and finding the one that works for you is no easy feat. Through trial and error and many hours of testing, you will find that certain patterns or elements from one strategy work for you, while others don’t. Find these setups and integrate them into a forex trading plan that works personally for you. Every forex trader is different and the setups you trade are going to reflect this.
Plan what gets you into a trade as well as what gets you out of a trade. Stop loss levels, take profit levels and whether any sort of change in price or time is reason enough to make you close or add into a trade on the fly. Every single possible scenario should be pre-planned. Even the best discretionary forex traders know their scenarios and what to do when a certain situation arises. When it comes to entries and exits, leave nothing to chance.
Journalling Your Trades in a Forex Trading Diary
Once you have found your trading setups and worked out how you are going to trade them, keeping a trading journal or diary of every single trade that goes through your account is key. You aren’t keeping a trading journal to impress anyone, you’re keeping it to learn from the mistakes you are inevitably going to make. Don’t ever lie about a result or action that you took in executing a trade because in the end, you’re not impressing anyone and just simply hurting yourself. Remember that the profit/loss in your account wont change no matter how much you try to tell yourself that it should have been different!
Many new forex traders think that the more that they write here, the better off they will be. But forex trading is about working smarter, not harder. You’re going get the most out of learning from your losses but when you have lost money on a trade, the last thing that you are going to want to do is write about it. This is why you have to keep your trading journal in a format that is simple and effective to keep on top of. Make your headings clear and the lesson you want to remember concise. Taking a lesson out of a loss to keep yourself from making the same mistake again is the entire reason you are keeping a journal so don’t waste it.
Don’t be afraid to include charts and screenshots of your platform inside your trading diary. Visuals are a great way to get your message across, especially if you’re a purely technical forex trader. The old adage that a picture is worth a thousand words couldn’t be more relevant to a trading journal and when put together will form a key aspect of implementing your overall forex trading plan.
Reviewing Your Forex Trading
The final step when it comes to creating a simple forex trading plan, is the process of reviewing your trading. As the forex market is closed over the weekend, this gives you two completely trading free days that you can use to review your week’s trading. Whatever you do, do not skimp on the review process! Writing about or screenshotting the mistakes you make or the lessons you want to take away is completely useless if you don’t learn from them in review.
The review process doesn’t have to be totally negative either. You’re encouraged to highlight not only what you did poorly over your trading week, but also the things that stand out to you that you executed well. Building on your strengths as a forex trader is just as important as trying to improve your weaknesses. The only thing that matters in the end is whether you can consistently make money from your forex trading, so don’t be afraid to specialise if it means you are adding to your account.
To wrap up, lets leave two quotes here that are absolute keys to trading forex in a consistently profitable manner:
“A losing trade is not a bad trade if you followed your plan.”
“A winning trade is not a good trade if you failed to follow your plan.”
Plan your trade and trade your plan!
Source: Vantage FX Blog
If you’d like to learn more about creating a forex trading plan, check out our best forex education broker.