Building a Trading Plan

Building a Trading Plan

The key to becoming a successful forex trader is developing a sound forex trading plan and using it on a daily basis. One must remember that a trading strategy that may be working well for one person might not do the same for you. This is because everybody has a different style of thinking, risk tolerance levels and market experience. It is always better to develop one’s own personalized trading plan and modify it as your experience grows.

So, a trading plan should define a few things;

what trading strategies you are usingwhat pairs/instruments you are tradingwhat are your risk tolerance levels

The first thing it should mention is what strategies you are using. So if you are trading pin bars or engulfing bars off key support and resistance levels, then it should state this in your plan. If you find yourself trading something else like inside bars, then you know you are deviating from your plan.

The next thing it should state is what instruments you are trading. For example, you may be only focusing on the EUR/USD, or perhaps the EUR/USD and GBP/USD. Make sure to state this in your plan.

Lastly, you want to have your risk tolerance levels clearly stated. This is not just % risk per trade, but also per session and per month. This way if you ever go over these parameters, you stop trading for the month and take a break as something is clearly not working.

But the key is to have these clearly defined ahead of time.

Make sure that you maintain a trading journal which has logs of all your trades. This is important because it allows you to analyze your trades and the success of the plan adopted by you. It should include the entry date, entry price, exit price, stop, limit, total profit/loss, and final notes which are your personal notes on each trade.I also suggest taking screenshots of every single trade you take, and color coding them based on it being a win or a loss. Then at the end of the trading week, reviewing your trades to see how you did, what mistakes you made, and what you can improve/focus on for next week.The plan can have a checklist of what you are looking for in the market before you decide to enter a trade. A list of such prerequisites helps to keep you trading with discipline and avoid any careless moves.

The creation of a trading plan is highly useful as it reduces the possibility of bad or irrational decisions based on emotions. The outlining of a plan for every potential market action will help you minimize such decisions and thus your losses. The key to disciplined and objective forex trading is to establish a trading plan and stick to it.