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What is a Trading Plan? Trading Style, Trading Motivation, Profit and Lose, Trading Routine and Tools
What is a Trading Plan? Trading Style, Trading Motivation, Profit and Lose, Trading Routine and Tools
Do You Have A Trading Plan?
As a trader, you should make your trading plan. It is not wise to follow other trading advice blindly. Other trading methods may not yield profits on your trade. All traders are in different places in life, and all of them have different market experience, risk tolerance levels, and market views. Also, the risk appetite differs from person to person.
You can update your personalized trading strategy as you learn from the market. Designing a trading plan and then sticking to it makes a trader successful. It requires a rock-solid discipline to become a successful trader.
A trading strategy shows what is expected to be done, how, why, and when. It covers your trading system, trader personality, risk management rules, and personal expectations. A trading plan will work to lower your losses and limit trading mistakes. It eliminates any bad decision choice taken in a rush. Your emotions can impact you when your capital is on stake. In such a scenario, you can take irrational decisions, leading in loss of capital.
That’s why it is always best to take control of your emotions by having a place for all expected kinds of market action. With an appropriate forex trading strategy, you have an idea of all the expected outcomes. This helps you in making rational decisions, even when the market goes against your trade.
There is a difference between a trading system and a trading plan. Later one defines how a trader will exit and enter trades, while a trading system is an integral part of a trading plan.
Why Do Forex Traders Need A Trading Plan?
Forex Traders Should Focus On A Trading Plan
A trading plan is intended to make the trading process disciplined so that losses can be limited. It helps you to know where you take a wrong turn, accordingly make changes in trade and then move in the right direction of the trend. Trading in the absence of a trading strategy will work the same way as driving in the absence of GPS on unknown roads.
You are looking to make consistent profits. But if you don’t have a plan as to where you are headed, you will end up eroding your capital. A trading plan will provide you with a framework to known your trading performance. Moreover, it will help you trade with reduced stress and emotion. If you don’t have a trading plan, then you are merely gambling with your money, which sooner or later will be eaten away in the form of losses.
In the absence of a trading plan, you can end up as an emotional wreck, complaining about the market and losses that you have made. You need a GPS to figure out the way to be followed and to ascertain the way covered. Similarly, a trading strategy determines the way to record consistent profits by keeping you on the right track.
Moreover, if you are not good at trading, which is more often the case with novice traders, you will understand it is because of two reasons. Either you are not following your trading plan, or there is some issue in your trading plan. A trading plan helps you to assess your outcome and to know where you are going wrong.
Why Trading Discipline is the Key to Consistent Profitability
Trading Discipline Leads To Consistent Profitability
Some traders believe that there is no need to have a forex trading strategy when you can book a profit anyway. They don’t understand that this way they would be just recording occasional profits. This will result in a short-term pleasure, which will eventually fade away when things will start going wrong.
You should not only always have a trading plan in place, but you should also use it every time you take a trade in the forex market. The profitable trades can also turn into big losses in the absence of a trading plan. If once you make a profit without following a trading plan, then it may prompt you to repeat it every time. This way, you will be more open to risks. The positive results of undisciplined trading are generally short-lived.
Learn to differentiate between unjustified profits and justified profits. Justified profits come when there is a trading plan in place, and you follow the same. Unjustified profits come when you don’t follow your trading plan. You may be able to make profits in a few trades, but in long-term, you will on losing side.
Maintaining discipline is important for profitable and consistent trading. The winning traders are those who make use of the defined plan and then makes the best of every possible opportunity. They have learned to take control of their emotions while deciding on a trade. Traders should permit the law of averages to support their trades to make a consistent profit. Moreover, understand the factors that you should focus on while making a trading plan.
How To Find A Trading Style That Suits Your Personality
Plan A Trading Style Based On Your Personality
It is vital to have a trading plan even before you initiate your first trade in the forex market. You tend to become more disciplined when there is a trading plan in place. The types of market scenarios that you can face while trading, and how will you behave in those scenarios are answered by a trading plan. Moreover, it is an easy way to limit losses and to make consistent profits.
It is also vital to follow this plan all times. It may happen that you occasionally made a profit without sticking to your plan. This may then become your habit. So, it is best to stick to your trading plan in all scenarios.
The first step in designing a trading plan is to take a holistic view of self genuinely. Your base of the trading plan begins with your self-assessment because it is only you who will be using it. This assessment will let you know what kind of trader you are and what your trader profile is. Your self-reflection as a trader will determine what kind of trading method fits you.
Trading strategies, methods, and systems which aren’t suited with your personality and profile will considerably reduce your probability lower of success. Some traders intend to jump into finding or creating trading strategies and systems immediately. They are not aware of which ones suit their unique situation and personality. Such traders should devote some time on self-assessment first. Before making any trading decision, there are some personality factors that you should focus on. This will help you build a solid trading plan.
What is Your Motivation to Be a Forex Trader?
What Motivates You to Be a Forex Trader?
Many people want to become a forex trader. However, they are not aware of the reason why they intend to become one. Do they want to get rich or they want to have some fun. Or maybe they find forex trading quite exciting and thrilling. The reasons can be many, but what is more important is to find out what is that factor that is motivating you to become a forex trader.
Forex traders who come into the market to experience some fun or thrill are soon removed by the market. Earning good profits without a serious plan is just next to impossible. A person may first enjoy the thrill of trading, but soon that thrill will turn into frustration when the money starts eroding due to wrong trades. Traders who are looking to experience thrill should not come to the forex market.
It is better to have a goal fixed to your trading. This can be stated monetarily utilizing a profit objective per unit of time. This goal can either be in percent or currency return. For instance, you might select an objective like recording a 50% return every week or making $500,000 per month.
Whatever you think of, ensure that it is measurable and specific. Fix trading objectives that will help you grow as a trader. It cannot be something bizarre like getting super-rich in a few months. Be specific that ok ”X’ is the percentage of return that is required every month.
What Is Your Risk Capital? How Much Money Can You Afford To Lose?
Risk Capital: What Is Your Trading Limit?
Before starting to trade you should determine how much you can afford to lose in a trade. The rule of entering forex trading is using risk capital, which is the money you can afford to lose.
This is the amount of money that if you lose you won’t lose other important things like your car, house, electricity or spouse, among others.
Avoid risking what you can’t afford to lose
Forex trading is full of risks, and therefore, you should be careful with the money that you use in trading. Avoid using money that you will use to pay bills to play because your judgment will be emotionally clouded this hurting your objectivity to make sound trading decisions.
Try imagining the kind of pressure you will be in a while your trade is open and knowing you might not be in a position to pay bills in the event you get stopped. Each time a pip will go against your thoughts will always be about those bills, you need to settle and how that now is in jeopardy.
As much as you want to trade and make some profits, you may not want to end up homeless, broke, and starving. Unless you are ready to be homeless and broke, you should not risk all your money in forex trading.
Avoid silly decisions
Avoid stupid decisions like thinking you can make the dough in the forex market when you can’t even afford to make some dough in the kitchen.
Use your brain and start forex trading using actual cash once you have accumulated adequate risk capital. Before then stick to demo trading and continue honing your skills.
You will later learn about risk management and how best you can manage your risk capital.
How Much Time Can You Dedicate To Forex Trading?
Earning From Forex Is A Factor Of The Time Dedicated To Learning
Forex trading is a lucrative endeavor. But it could also be a black hole which swallows your capital without relenting. The trading experience is unique, and every trader will tell you a different story. In all the hullaballoo, one thing remains; nobody can make it in forex without learning first.
Why a plan is crucial
The forex market is on for 24 hours a day and seven days a week. This is because the market is global, and due to differences in time zones, there is always a trader awake who is closing a position or entering a trade.
Forex trading involves a lot of things. You will not only need to stare at simple to complex charts but also doing market research and keeping tabs on the latest news reports which are relevant to your trades. As such, one needs time and a good plan to help navigate the forex jungle.
This is why traders need to create a trading system. Put, this is a plan of action like when to enter and exit trades while hedging the downside risk. A trading system is critical in helping you avoid making trades based on emotion. This could be quite disastrous to your capital.
Dedicate time to learning
Even coming up with a trading system is a lot of work in itself. In particular, you have to consider a lot of things like the trading hours you can comfortably dedicate to staring at computer screens and so on. As such, this will have a huge impact on your lifestyle.
Dedications imply avoiding distractions like watching funny videos on YouTube or updating your status on Facebook. The ability to dedicate enough time to developing your trading system is imperative to the successful trading experience.
Once a trading system is in place, you will need operating hours to manage it. It is prudent to make notes after reviewing a trade you have exited to identify what could have been done differently. Therefore, one must decide on how much time is there to commit to trading without falling by the wayside.
What Is Your Daily Pre-Trading Routine?
This Is What You Should Do Before Starting You Trading Day
Forex trading might seem like a hobby to some, but it is an actual career to serious traders. These people do what full-time employees do because they take the job seriously. However, this should not only be the case for full-time traders. Any forex trader should want to grab as many pips as possible, and that requires one to establish a tradition which makes it possible.
Establish a pre-trading routine
It is not uncommon for traders to work from home. This means that they are not subjected to the rigors of formal employment. Unfortunately, one is more likely to fall behind due lack of discipline because you are just around the house by yourself, and there is no boss to breathe down your neck.
Success in this industry calls for a very high level of commitment. This means one needs to establish a pre-market routine, one which paves the way for a fulfilling experience at the terminal.
What do you between waking up and viewing the trades you initiated yesterday? Well, there is so much in pre-trading activities which should become part of your life as a trader.
Before you make that first trade for the day, do you know the status of the other trades entered before? Review the positions and ensure that the necessary adjustments are made.
Secondly, check the current news, and watch out for the particular stories with heavyweight on your open positions. While at that, look out for upcoming news and find out how they might affect the positions you want to open.
Preparation is critical
The pre-trading routine is a way of conditioning your body and mind to the rigors of the market. It is just like an athlete who has to get into the right shape before an important match.
The preparation will enable you to have your finger on the pulse of the market. You will determine the prevailing market sentiment and identify critical resistance and support levels for your open positions. Also, you will be in the position to determine how many hours you will dedicate to the activity for that day.
What Forex Trading Software, Hardware, And Other Tools Will You Use?
Consider These Tools To Streamline Your Trading Career
Like any other profession, forex trading is demanding. It requires a specific set of tools and skills which should streamline operations. For serious traders, the choice of these tools is done with utmost caution. This is because they understand that success in the industry is a function of everything which a trader does and possesses.
What is a complete trading desk?
Forex trading is a combination of what you have in terms of knowledge and what you will use to utilize the knowledge. To fully stock your trading area, you will need a member of things, both software, and hardware. One can as well call these the “toys” for your use.
A complete trading desk is more than a computer and internet access because this is just the hardware part. Still, there is a need for more hardware like power backup and even an alternative source of internet, in case the one you have failed.
You will need software and links to websites which will feed data to your trading system. Particularly, trading software like meta-trader 4/5 linked to your preferred broker will ensure that you do everything for yourself. In this digital age, traders are increasingly handling trades themselves instead of calling banks to initiate trades.
One should be careful while choosing software to use. Forex is replete with trending vendors who mostly turn out to be scammers who sell needlessly exorbitant software.
Choosing a broker
A fully-equipped trading desk is not enough to enable one to enter and exit the market. Rather, one will need to access the market through a broker. As software vendors, there are scammers who operate under the pretext of brokers. It is upon the trader to ensure that due diligence is done to find eligible brokers.
It is necessary to understand the nuances of the market as regards the operations of the brokers. A further understanding of what charges depositing and withdrawal attract. Each broker as their charges and traders should identify which one is the most preferable. Also, proper due diligence will enable traders to know the size of spreads which brokers maintain when one enters a position in the market.
Stick With Your Trading Plan
Remain Faithful To Your Trading Plan For The Best Results
You have done your research and have settled on the best broker to help you access the market, and now is the time to formulate your trading plan. The forex market is very volatile and has a lot of moving parts. Therefore, there is no way one can trade blindly without a plan.
Why you need a plan
The forex market is like a jungle, and you are supposed to navigate through it while blindfolded. As such, you must have a guiding method to help in navigation. Think of a trading plan as a GPS device which tells you where to go.
Typically, such a device figures out your direction after you feed it with information. Once it has figured out, it will show you with clear directions on how to get there.
As you navigate your way, you can always check your device to see if, by any chance, you might have made a wrong turn along the way.
Similarly, a trading plan is a trading GPS with the capability to keep you on track to your goals. It will show you your current location and the intended destination. In this case, the destination is consistent profitability.
Stick to the plan
While navigating unknown terrain, one usually keeps the GPS device close at hand. In the same manner, stick to your trading GPS since its effectiveness manifests once it is followed.
Sounds like common sense, right? Yet many traders do not do it!
Perhaps most of these traders who lack a plan have previously followed one which was out of sync with their trading style. Usually, this happens when traders fall prey to signal vendors who have unnecessarily complicated trading systems and their returns are inconsistent.
An important trick is that you must create a plan which suits your specific needs. The first step must be to determine your goal and what kind of returns you want to see. Your trading plan must be compatible with your whims and primary objectives.
It all begins from you being honest about your entry into forex. Also, ensure that the plan is realistic; that is, it reflects the reality in the market, not what you hope it should be.
Developing a Trading Plan
These Are The Key Benefits Of A Trading Plan
Given the complexity and volatility of the forex market, it is not uncommon for traders to develop trading systems. The primary objective of the resource is to guide the trader toward a given profit target. However, this system requires a plan to ensure that it is rolled out in the manner most likely to achieve the objective.
An organized approach
It is not enough to have the most elaborate trading system in the market if there is no well thought out plan for implementation. Essentially, a plan ensures that you approach the market in a most organized approach.
A trading plan is a disciplined approach to the forex, and following it will guarantee good returns. Oftentimes, a good plan can still be profitable even when a trader has some losing positions. Such a trader will survive the sudden swings typical of the forex market for long years.
Why should you have a plan?
In addition to helping one stay afloat for the long term, a trading plan makes trading simple. The forex market is very broad and contains a lot of information and techniques which one must have an idea about. Approaching such an environment without a plan will overwhelm you and lead to a blown-up account.
A trading plan will rationalize your activity in this fast-paced market. If you adhere to the plan strictly, you are unlikely to enter very few bad trades. This is because the irrationality which arises from spur of the moment behavior will be checked.
There should be a difference between gambling and speculating in the forex market. While gambling lacks discipline and proper control, speculation follows a system of logic. Trading without, therefore, means that you are simply gambling with your hard-earned capital. A plan will ensure that you operate within certain bounds which are biased towards ensuring you earn a profit.
Ultimately, a trading plan is like a GPS device which tells you the direction and shows you how to reach your destination. Fortunately, the plan is always work in progress, and you have the liberty to tweak it for the best results.