This article is aimed at providing a great insight into why it’s truly essential to have a concrete forex trading plan in place. You must know all the things that you ought to include in your trading plan in advance. The actual point of trading is about holding you accountable for all planned moves and keeping you from being thrown off the track. This, in turn, will enhance your positive way of thinking. Don’t attempt to take a fresh trading decision while keeping another trade open. It might simply back-fire. Your best opportunity to plan your trades comes when you’re not participating in any trade. You’ll find a great mentor in your logical Forex trading plan as it helps in eliminating all trading errors that you commit emotionally.
- Forex Trading is your business. Attitude is a huge factor in your trading results. If you look at Forex trading the way you look at gambling in a casino for fun, or as a get rich quick plan it will severely affect your trading success. In a business you look at your overall profits and losses, not each individual expense or sale. If you approach your Forex trading the same way rather than getting over confident after a profitable trade, you will be trading from a different perspective and it will improve your overall trading results. If every time your business has a low grossing quarter, you changed your business strategy and your business plan, it would not be a smart way to do business. The same with Forex. If each time you have a loss you changed your strategy or took bigger risks, it would affect your trading results negatively although it is important to see each trade as a piece of the entire puzzle and realize it has potential to make or break your business year.
- Stick to Your Trading Plan. Much of your trading success in the market depends on your trading discipline and how you maintain self-discipline. It often poses a challenge for you to determine whether you’re thinking objectively or trading emotionally. This is a trading juncture wherein it’s crucial to follow a well-defined plan for forex trading. This trading plan acts as a mentor that will help you in setting your feet firmly on the trading path.
A pre-defined trading plan often helps you stand out among other forex traders since it reflects your own effort to determine a unique trading path that you choose to follow in an attempt to taste success. There are certain steps you wish to follow in a trading market, but your action plan never lets you take the risks. The fact that you only have yourself to hold accountable for your actions never lets you take too many risks or explore all of your ideas. This is the basis of developing a safe and sound forex trading plan.
Once you have researched, tested and perfected your trading plan, the most important part of the plan’s implementation. Confidence in your plan and not wavering from it are imperative to successful Forex trading. Letting emotion get in the way of using your trading strategy will only affect your trading results badly. Follow your plan as if it is law. Do not change your trading decisions based on what you hear from “experts”. Do not deviate based on your gut feeling. Do not deviate AT ALL.
- Manage Risk Carefully. There are a few different ways to manage your risk in Forex trading. One of the key ways is to use your position sizing to your advantage. It is important to choose your position size based on your whole account and what a loss will do to your entire portfolio. Adjusting your position size to make sure that it works with your stop loss is an essential part of managing your Forex trading risk. Determine the stop loss that you will be working with and then adjust your position size to maintain the risk reward ratio that you are committed to as part of your trading strategy. It’s often quite tough to assume the magnitude of losses pertaining to foreign exchange trading in advance. Illiquid assets and substantial losses could be the outcome of a small fee due to such leveraged trades at large. In addition, the currency of your land and your financial market will stand witness to some far reaching complexities created by political issues and difference in time zones.
- Always be forward thinking. If you want to improve your trading results and you have been religiously sticking to your strategy, it might mean that the trading plan needs tweaking. Once you have determined that your trading strategy is in need of a change, it should of course be researched, and tested repeatedly before implementing the change. Learn new price action-based strategies. Test new settings for your trading plan. See where these possible decisions would take you over a long period of time, and only then should you consider making adjustments. Just because you need to stick to your plan does not mean you cannot learn and aim to improve in the future.