Developing a Trading Plan in Several Steps

If you want to succeed in Forex trading, you should be ready to develop a plan ahead. Without any preparation, your chances for success are reduced to the minimum. Thus, you need to know what you're looking for and how you plan to achieve your goals.

Many sources will highlight the significance of Forex trading plans, not only for beginners, but also for the professional traders. Here are the major steps that will lead you to Forex trading success:

  • Develop an Analytical Approach

    The analytical strategy is represented as a combination of price support and resistance, trend lines, chart patterns, Fibonacci levels, and moving averages. This initial step of the trading plan allows traders to narrow their focus on a bunch of scenarios that the trader is convenient with. Thus, traders can search for the opportunity to trade according to the desired trade set ups.

  • Pick up Your Favorite Trade Set Up

    The trade set up is at the center of the trading procedure. But you should think of the analytical strategy as the process that launches the trade set up. This consolidation pattern encourages the rise to subsequent action from the trader so that the trader will trade the breakout, wait for a pullback, or combine breakouts with pullbacks. Set ups are based on a series of factors that collectively result in higher probability trades. If you are new to forex trading, this procedure may take some time to be sorted out.

  • Limit the Markets to Focus on

    It is crucial for traders to limit the number of markets to focus on. By limiting the scope of markets, traders can gain a better understanding of the market nuances in question. Traders can even focus on particular time frames and the characteristics and movements of the specific market.

  • Focus on Your Holding Period

    Time frames are determined by the type of trader. Traders focusing on short-term trades are scalpers and day traders. Medium-term traders usually hold trades for several days so that they are referred to as swing traders. Long-term trading is associated with time frames ranging from a number of days, weeks, months and in some cases, years.

  • Learn Your Risk Tolerance

    All elements of the trading plan are crucial. If risk management is missing, the whole plan will stop being eligible. Traders will need to address their personal risk tolerance which reflects on the trader’s willingness to set stop losses while limiting downside risk.

  • Plan How You Will Manage Adversity (and Efficiency)

    All traders will experience the dreaded drawdown, so it is crucial for traders to determine a few rules to manage emotions. An effective method to do this is to estimate an amount or percentage loss, which would make the trader to identify the risks. Instead of setting this figure, you should rather quantify the upfront. What to do when trades are efficient? Overconfidence can quickly turn winning trades into losing ones. If the market moves in a positive way, it will increase risk/exposure.

  • Have a Routine to Stay on Track

    Traders should set time to reflect on the most recent events and analyze individual trades. It’s a smart idea to constantly review the trading plan if it is needed. Periodical trade review is an excellent way to make sure that you are following the process highlighted in the trading plan. Make a note or save charts addressing successful and unsuccessful trade set ups that can be checked later on.

Thanks to trading plans, you will start trades in a fast and easy way. The purpose of a trading plan will be to provide you with a strong foundation and boundaries to deal with.

The Bottom Line

Efficient practice trading does not guarantee that you will achieve success when you start trades with real money. That's when feelings get involved into play. But efficient practice trading provides the trader with confidence in the system they are using. If the system is generating positive outcomes in a practice environment, traders should decide on a system. It is less significant to gain enough skill to make trades without second-guessing or doubting the decision. Confidence is a key to success.

Whatever Forex broker you join (FxPro, ForexTime, Admiral Markets, FxOpen, eToro, and iForex), you have no guarantee to earn money. The trader's opportunities are closely associated with their knowledge and skills. There is no such thing as earning without losing. Professional traders are familiar with their odds while they are in their favor. By letting their profits increase and making their losses decrease, a trader may lose some fights, but they will win the whole war. Most traders and investors tend to do the opposite, so they don't make money all the time. Traders who make a profit consistently treat trading as a business. That’s why it is important to have a so-called business plan.