The foundation of your tradings starts with a trading plan. The first step in building a trading plan is self-reflection as you will be the one using it. Self-reflection will help you reveal who you really are as a trader. Trading strategies which aren’t compatible with your profile and personality will drastically lower your chances of success.
In trading you have only two choices: Follow a methodically written plan or fail. Here are 5 essentials that every plan should include:
You may be strictly a stock or currency trader, or you may be trading multiple markets. Create a separate category in your trading plan for each financial instrument.
As a trader you must know the time frame you are executing your trades. Day traders for example would be trading lower time frames whereas swing and position traders would trade higher time frames usually 4 hours or daily.
You might trade a particular currency based on a series of chart indicators related to momentum, moving averages and trend lines. Write down the exact conditions that must be met before you can enter a particular trade.
Thinking through the trading size ahead of time will help you avoid taking risks that may result in tremendous loss. Record the number of shares or lots you intend to purchase.
Your goal might be to buy a particular currency when it reaches a specific price. Write down the price at which you want to enter the market and at what price you will get out.
Test your plan in real life. Begin by trading small as very little risk will be associated in case you make any mistakes or lose money. Having your own money on the line will teach you more than anything you can imagine.
Evaluate your trades so that you can make an objective conclusion as to whether your trading plan has an edge on the markets. Some relevant metrics that you can include are:
Date of your trade
Time frame you are
executing your trades
Position size entered
Direction of your trade
Price you enter your
Price you exit
Profit or loss made
from the trade
Just like the financial market your trading plan is dynamic and is subject to changes every time. Based on your evaluations, how did your trading plan perform? As you are trading you are exploring different strategies and methodologies. Track your ideas an implement them in your plan.
There you go, an easy and simple path to follow in order to become a good Forex trader. Remember, to be a successful trader,
you have to develop a strategy that you understand and that you believe gives you the best chance at success.