Forex Trading Plan – Before you jump into trading on the foreign exchange market, you need to develop a forex trading plan.
Forex Trading Plan
Forex trading is more than simply guessing and initiating trades — it’s about discipline and strategy. A trader has to be able to see the whole picture. Individual trades will win and lose, but the ideal goal is to create an environment that fosters profit. And this requires both foresight and planning…
Extra reading: Choosing a Forex Trading Strategy
1. Identifying Your Trading Personality
What kind of trader are you – or plan to be? This is probably one of the most crucial questions…
Are you the type who likes to take big risks, or the type who likes to make a steady profit over time? Determining your trading personality will inform your entire strategy from then on. There is no “one size fits all” forex trading plan; there is only the plan that is best for you.
Preparing yourself psychologically is one of the major aspects of planning.
You need to understand yourself and your motivations before you can become a good trader. Trading on the forex market is fast paced; if you don’t understand your own psychology, you’ll find yourself making rash decisions that are detrimental to your profit.
2. Building Your Forex Knowledge
This goes beyond just funding your account.
In addition to creating a reasonable amount of money that you will be trading with, you also need to collect intangible resources — forex knowledge. For example:
- Where can you go for the best trading tips?
- Where can you learn more about trading?
- Are there individuals that you can reach out to and network with?
- read more on Gold Trading Basics
Building a solid foundation as a trader is very important; there will be times when you need advice now and you need to know where to find it.
Apart from this, of course, you also need your physical resources.
- Where will you be trading?
- Is your technology up to par?
- Is your internet connection reliable/fast enough?
The forex market requires lower latency than any other market because it moves so fast. You need to have a quick Internet connection and a variety of Internet-capable devices to keep up with the pace.
3. Determining Your Trading Goals
What do you seek to gain from trading? Are you attempting it as a way to bring in extra income to your family in your spare time — or do you want complete financial independence?
Be very clear and reasonable about your goals.
It’s important that you know what you’re working towards, as a trading plan without a goal isn’t a plan at all.
You should set certain metrics for your success, i.e. a certain amount of profit at a specific time. You may want to slowly ramp up your forex earnings to your current income, so that you can become independent from your current job. Just remember to factor in the taxes!
4. Finding a Broker and Trading Platform
Your forex broker will be your closest ally and friend.
A broker has to support:
- the currency pairs your interested in
- have low spreads
- be trustworthy and reliable
- have low latency
Many forex brokers come with their own trading platforms, though many others simply support the MetaTrader 4 (the most popular type of forex trading platform). Regardless, you need to find a broker and a platform that you feel comfortable with.
There are many brokers out there, and they are not all made equal. Before choosing a broker, look through reviews and testimonials from other traders. This will give you insight into how they operate and whether there are any particular issues you should be watching out for.
See our guide on finding a forex broker for assistance.
5. Finding a Trading Signal Provider (optional)
If you want to speed up your learning curve and start trading now, you can use a trading signal provider.
Signal providers take a significant amount of guess work out of the process of trading. You still need to manage your own money and your own discipline, but you don’t have to determine which trades to take. A forex signal provider tells you exactly when to buy or sell and what prices to exit at.
This essentially replaces the process of market and technical analysis.
Of course, that doesn’t mean it eliminates all your planning and strategy. A great deal of forex is about money management rather than actually initiating profitable trades.
A signal provider takes out the more mundane and risky tasks from trading while still requiring you to have discipline and drive to succeed. As with finding a broker, finding a trading signal provider requires that you be diligent. Look up reviews, compare features, and find a trustworthy partner that will be able to fill your needs for the foreseeable future.
See our guide on finding a forex signal provider for extra help.
6. Setting Your Trade Limits
And, speaking of discipline, it’s important for you to set your limits early on.
- How much of a loss are you willing to take on your account?
- How much, reasonably, can you afford to lose?
In the world of trading, you should never invest anything that you aren’t prepared to lose entirely. Anything can happen on the market; it moves quickly. By setting your limits early on, you’ll have better luck at sticking with them.
If you’re developing your own analysis rather than using trading signals, this is the type when you will determine what analysis types you are following.
- When are you going to buy?
- When are you going to sell?
- Where will you set your take profits and stop losses? (And you do need to set them.)
These are all the technical aspects of trading that have to be set in stone before you begin.
Trading is less about being magically accurate about your trades and more about being consistent. The more consistent you are as a trader, the more likely you are to be profitable. As a consistent trader, all you need to do is find a strategy that wins a little more often than it loses. forex trading plan.
As long as you can do that, you will eventually be able to compound your profits.
7. Testing Out Your Strategies
Not everything in life just works out of the box.
Before you take your forex trading plan live, you may want to test it out with a live demo account. Live demos are provided through many brokerages and give you everything that you need to get started in an account with virtual money rather than real money.
These demos track the actual market and spreads, so you can see whether your plan works. forex trading plan.
Start out your live account with the same amount of money that you are going to invest and spend some time — weeks or even months — testing out your process. forex trading plan.
By doing this, you’ll be able to see whether there are any flaws in your plan that you haven’t yet revealed. You’ll also be able to get accustomed to your new broker and trading platform, and you’ll discover any other potential issues that you might not have considered beforehand. Demo trading is an incredibly important aspect of a trading plan, as it will give you the opportunity to revise your plan before you have committed to it.
Once you’ve created a plan that you feel works, you’re ready to begin trading.
Remember: the process of becoming a trader is all about you. What works for one investor may not work for another. There are very few wrong ways to invest, as long as you do so in an educated, consistent, and thoughtful manner.[/vc_column_text][/vc_column][/vc_row]