Trading Plan

Building a Trading Plan for Newbies

The foreign exchange market is making waves with newcomers and veteran traders alike thanks to online brokers. Do you have access to the Internet and a bit of disposable income? You can see big returns if you plan right.

Because of the ease of getting into the market and the lure of “easy money,” trading has become more accessible to newbies looking to make it big while investing just a small amount of capital. However, the fast-paced nature welcomes the untrained that are prone to overlook mistakes that could be prevented with the proper training and strategy planning. Failing to recognize the importance of planning out your trading is what separates the successful traders among the rest.

 

To invest in knowledge about the concepts of planning a trading plan is a way to ensure a long term business and eliminate the gambling aspect of it all.

Introduction to Forex Planning

Anything successful always starts with an effective plan. To sit down and create an organized chart of goals, procedures, and action steps across the board covering competition and investment allows you to prepare for your business to start and grow yielding the best possible results.

 

A gambler will walk in and rely solely on luck and instinct when it comes to the market, and a successful trader will have played out every course of action to take when presented with different patterns and movements in the market. Can you guess which of the two would most likely result in success?

Risks of Trading Without a Plan

Gamblers can win. That’s always a possibility. However, those who were unorganized and inconsistent won’t have long term success.

Without a proper system to their trading, this can result in letting their actions being carried out by emotions and impulse. Without a disciplined approach to money management and analysis of risks, they sabotage their chances for larger and more positive outcomes.

Forex trading is enticing because of how little capital is needed. However, by allowing yourself to be in a position of higher risks, you might find yourself suffering more losses than wins. It’s best to not only focus on potential achievements, and more on what you need to consider and analyze for you to reach your goals.

Other risks you can avoid with proper planning are:

  •    Using too much leverage. Don’t be blinded by the possibility of high profits. Stick to the margins available in retail trading to lessen risks and ultimately higher losses.
  •    Not cutting your losses short. In an unsuccessful trade, learn to cut your losses short early on to lessen the chances of bigger losses. Focus on protecting your account and keeping your business up and running.
  •    Turning a winning trade to a losing trade. It’s tempting and seemingly the smart thing to do to stay in the lane of a winning trade. Remember that the market changes without notice, so plan ahead on how profits are taken and when to close the trade.
  •    Not adapting to changes. Your successful strategy won’t work on every single market condition. When it changes, adjust your strategy accordingly. Analyze the different market conditions as they come and learn to ride each wave rather than stick to the same plan, which will often not give you the same results.
  •    Letting your emotions take over. When you are feeling dealing with strong emotions, a sturdy trading plan allows you to continue making objective and smart decisions that are concretely based on the different scenarios that can take place when you’re trading.
  •    Experimenting. Demo accounts were made so you can experiment with the different techniques and practices you can use that approach to trading. However, when you move from a demo account and start trading with real money with the chance of real losses, let your trading plan do the work to avoid big losses and avoid trying out new things.
  •    Set proper expectations. There can always be exceptions to the rules in place, but make sure you keep a realistic approach and mindset to ensure real actions. It’s a good idea to take a look at a currency pair’s past and predictive performance to solidify your next trade move.

Because of the long list of possible risks to consider, those new to forex trading are encouraged to sufficiently prepare and plan beforehand. Starting with a demo account is a great way to test the waters as well as formulate your plan!

Business Plan for Currency Trading – Know the Benefits

It is easy to feel overwhelmed and intimidated by the nature of the business, but having an organized, strong trading plan will help keep you on the right track with little to ideally no losses. Just like how a doctor would need a clear X-ray to properly maneuver around a patient’s illness, your trading plan should help you maximize the potentials gains.

The benefits circle around veering as far away as possible from the already mentioned downfalls. By outlining a trading plan and sticking to it, you can reduce strain and stress, especially towards the financial aspect of it all.

Approaching forex trading as a business and not as a gamble will strengthen your chances of long term profits. Explore different management measures and also take the time to continue educating yourself to stay in tune with the market and trading system.

A structured plan will reinforce an objective course of actions towards the different scenarios you can get into, and you can continue trading with confidence. Suffered a loss? Revert back to your trading plan on the best route to take possible to ensure you stay on the correct course. With a detailed plan, you can make countermeasures quicker and recover faster. Instead of questioning the market and the currencies you are reviewing, it can also help you identify profitable opportunities that should be taken right away. Less time analyzing will also allow you to take breaths and retain the right health to make the right decisions.

Forex Trading Plan Basics

When creating your trading plan, ensure you cover the basics:

  •     The Goal. Figure out your specific goal and how to go about achieving them. Predict what scenarios would indicate whether or not the goal is being achieved or not, and make adjustments to your action plan in case you are blown off track.
  •    The Market. Determine your approach to your researching your market. Organize how much your analysis will influence your trading.
  •    The Position. Allow your plan to guide you on what position to take in a trade as well as when losses and profits will be taken.
  •    Trade Management Organize a means of managing the different variables of your trades, determine your risks, and how to best manage including your emotions towards different situations.

By outlining the basics, you should be able to equip yourself on what your goals are when to stay in a trade, and when to cut your losses.

The Importance of Keeping a Trading Journal

Keeping a daily record of your journey and progress will allow you to have an overview of your timeline of errors and triumphs which you may continue to use throughout the course of your trading. With this, you’ll be able to determine what steps yield what results and to help you avoid similar errors in future trades by integrating them and making adjustments to your trading plan if and when needed.

Essential Components of a Trading Plan

Your trading plan should be personalized to meet your objectives and style, but you can never go wrong incorporating with fool-proof basics to your plan:

  •    Your Goals
  •    Time, funds, and educational investment
  •    Your Broker
  •    Risk CAPA
  •    Market research
  •    Market condition adjustments
  •    Objective trade entry and exit criteria
  •    Position sizing& management
  •    Money management
  •    Regular Trading Documentation

Once your trading plan has been fine-tuned to cover the basics and fundamental tenets, ensure that you trust and stick to it. Otherwise, you are exposing yourself to the many risks that can arise with trading. Dive into the waters with a suit made of commitment and discipline and always face problems head-on. Don’t let one blow hurt your confidence, your reaction to tough situations could determine a permanent and lasting outcome for your goals.

A Sample Trading Plan

As previously mentioned, your plan should be tailored to fit your specific and personal goals and management styles. It should also, at the very least, cover all the basics. It doesn’t have to be severely detailed and outlined to generate successful trades.

A simple trading plan based on popular trading algorithms might look something like this:

SAMPLE FOREX TRADING PLAN

My Goals, Commitments, and Partnerships:

Goals: Gain an additional $1,500 from forex trading every month to fund purchasing a new house.

Time commitment: I commit to dedicating ten hours per week to work on forex trading.

Funds commitment: I currently have $4,000 in risk capital to use towards trading.

Institutional commitment: I am currently enrolled in a forex trading crash course and am determined to learn more and strengthen the necessary skills needed for a successful forex trading business.

Broker partnership: I have decided on partnering with ABC Broker as their company history with forex trading is the most impressive and satisfactory to my needs. I will move forward with them as my online forex trading partner and handle the transactions based on my goals.

Risk and Money Management:

Legal: Forex trading is legal in my state and country and has been legal if conducted with a regulated broker.

Market movement risks and position sizing: Will be based on a currency pair’s average performance one month prior to the date of a possible transaction. Bid and ask price will vary based on the probability of a higher positive outcome.

Account risks and position sizing: Only 5% of funds will be utilized per trading position, and only 3% of my remaining funds may be put used for trading, when at the risk of account drainage.

Market Analysis:

Fundamental:

I will not engage in trading for two hours before and after any government announcements and news releases relevant to either currency in a currency pair.

Technical Indicators Used:

  •    An 80 minute RSI(4) with its upper line at 85 and its lower line at 15.
  •    A Daily SMA(50) and a 300 minute SMA(20).

Market condition adjustments:

The trading system will not be used for active market trading.

Trade Entry and Exit Criteria:

Entry Rules:

  •    Buy a currency pair when its exchange rate is above its Daily SMA and under its 300 minute SMA, with an RSI reading below 15
  •    Sell a currency pair when its exchange rate is above its Daily SMA and above its 300 minute SMA, with an RSI reading above 85

Exit Rules:

  •    When buying and the exchange rate moves above the 300 minute SMA.
  •    When selling and the exchange rate moves below the 300 minute SMA.

Trading Journal Contents and Review:

I will utilize Google Spreadsheets, creating an entry every time a trade is made. For each trade entry transaction, I will write down the pair, amount, and either profit or loss made from the trade. I will also promptly list the date and reason for the exit.

A sweep on my progress will be made at the end of each month to review and revise the trading plan for the next three months as necessary.

Conclusion

Trading can get be complex and intimidating, but those things are nothing to a trader that is well prepared. Do not rely on luck alone or be dazzled by what little it takes to actually get started. Ensure you are knowledgeable and are backed up with a trading plan to generate as much profit over a longer period of time. Really take the time to sit down and map out your battle plan to create smooth sailing when trading. It has its difficulties and can be overwhelming at times, but all that can be alleviated with just a little preparation and an action plan for pre-determined and forecasted situations. To learn more, visit FX Trading Pro.