A trading plan can be essential to becoming a successful trader. It is a set of guidelines or a structure that will determine your trading activity. This is useful in helping you plan, focus and execute your forex trading strategy. Unfortunately, no one trading plan is perfect and neither will there be one plan that will suit every trader. Every trader has a different style and different way of approaching trading and therefore every trader needs to develop a trading plan to suit their specific needs.
General Rules for Building Your Trading Plan
While there are no specific rules for a trading plan as they will vary between people, there are some general rules that each person should follow to help make their plan a success.
- Write down your objectives – Make sure to put pen to paper as having these points written in front of you will solidify them and make it easier to create a plan based on them.
- Manage your money – You cannot be a successful trader if you are not able to manage your money and a money management plan needs to be built into any trading plan.
- Record your trades – In order to develop a successful trading plan, you need to be able tweak your plan as you go. To do this, you must have a record of all your past trades and their outcomes. Add notes, charts and comments.
Creating Your Trading Plan
There are several steps in creating a trading plan and finding a successful plan for you will take time and effort. There are no quick solutions so if you expect this to be a process, it is likely to be more successful.
- Understand yourself as a trader – To be successful as a trader and create a trading plan that will work for you specifically, you must understand yourself as a trader. In other words, you must know your strengths and weaknesses with regards to trading and any personality traits that may impact your trading.
- Set your trading goals – This must include profit goals and timeframes, including daily, weekly, monthly, bi-annual, annual and lifetime goals.
- Research trading methods – To pick a trading method that suits your trading style you must research the methods and understand all the different options that are available.
- Choose a market – Different forex markets around the world open at different times of day. Consider your schedule and availability when choosing the market, you want to trade in.
- Develop a trading system – Set up the rules for your trading that include risk management so that whether your trading is mechanical or case-by-case, the rules will guide your decisions.
- Establish risk management – This is one of the most important aspects of a trading plan and it focuses on your exposure, how much capital you can lose and many more points. These need to suit your trading style.
- Test your system – This can be done if you keep records of your past trades, allowing you to tweak your system as needed.