A forex trader who wants to be successful in the business should learn how to create a forex trading plan. A trading plan must include what a trader plans to achieve, the amount of money he intends to trade with, etc. Let’s break down factors to consider when creating a trading plan.
What to Consider if You Want to Create Forex Trading Plan
- Goals
- Risk Management Rules
- What markets you will trade, and when
- How do you plan to grow your account?
- Backtesting
- Further your education
- Recording your trades
- Record your all trading activities
1. Goals
Trading goals help traders stay motivated to implement their trading plans. For example, a trader may say their goal is to read one Forex book per month or do everything they can to make Forex Trading his full-time job. The goals may be monetary or educational.
Set both short-term and long-term goals. Remember that short-term goals are the small steps leading to long-term goals.
2. Risk Management Rules
Even though a trading strategy is essential, a trader’s risk management rules are more important than the strategy. Note the percentage you want to risk per trade and how much you can lose in one day before stopping(drawdown). For example, if you lose 5% in a day, you close the chart and return the next day.
Good risk management rules should protect your account from drawdown. If you follow the rules religiously, they should help you stop blowing your account when you are in an emotional state of mind.
Remember that your strategy will not win every time, no matter how good it is. What is important is consistency.
3. What Currency Pairs You Will Trade and When
Restrict your trades to currency pairs you backtested when you were starting up. More markets will become available as you perform more backtesting.
You may also trade only at certain times of the day if your backtesting has shown that your strategy is more efficient at certain times. This may be in the morning and evening when volatility tends to be a little higher.
In Kenya, you will be able to catch volatility between 10 AM to 12 noon East Africa Time (If you plan to trade in the morning) and between 3 PM to 6 PM East Africa Time (If you plan to trade in the evening).
4. How You Plan to Grow Your Account
Like any other business, your trading account will need money to grow. You can grow a Forex account by reinvesting profits or adding savings from other sources. If you plan to withdraw regularly, do not withdraw more than what the account makes.
There is no rule of how much percentage of the profit you should reinvest in Forex business. But if you want the business to grow, do not withdraw over 50% of earnings at the end of your trading period.
“Rule no 1: Make Money. No 2: Use that Money to make more Money. Rule no 3: Repeat”
quotemaster.org
5. Backtesting
Backtesting is something that you should keep doing. Note down how and when you are going to do it. Afford sometime each week or each month to work on these backtest ideas to make improvements. This may give you ideas on reducing stop loss sizes on specific setups. It may also give you ideas on how to increase Take Profit.
If you Backtest correctly, it will not only lead to improvements in your strategy, but you will become better at implementing your strategy.
6. Further Your Education
It doesn’t matter how long you have been trading or how profitable you are. There is always more to learn in the world of Forex. Follow these guidelines:
- Set some simple learning goals you want to achieve over a year.
- Write down what you will do to achieve this.
- Set a roadmap of topics you would like to investigate further. It could be a list of books you would like to read, seminars you want to attend, or courses you have enrolled for.
The only topics you need to learn more about are Risk Management and Psychology. Do not hop from one trading strategy to another.
7. Recording Your Trades
Recording your trades helps you to reflect on your performance. New traders often overlook this part, but it can be beneficial when done effectively.
If you record trades, you can see how well you have implemented your strategy’s rules. Are you taking profits too early, holding losing trades for too long, or are other habits affecting your performance?
These can only be identified through journaling trades. Once you know what common problems you are running into, you can put plans to fix those issues.
Knowing how you will record your trades and other information is something you should decide on beforehand. We have prepared a free trading journal for OpWell Forex readers that you can get on request.
8. Record All Trading Activities
Nobody else is accountable for your success or failure except you. You can periodically record what you are doing and compare that against the goals you state in your trading plan.
If you struggle to do this, you can ask another person to keep you accountable for your goals. That person can be your partner, your friend, or your employee. Tell them what you want to do and how you want to do it, and let them assess your performance.
Alternatively, you can join a trading community and tell others about your goals. Let them see your results at the end of every trade.
Whatever your trading plan looks like, its aim should be to provide a framework for approaching the markets and progress as a trader. Develop your trading plan in a way that aligns with your personality. That way, it will work for you.
Conclusion
That’s how to create a forex trading plan. If you create one successfully, remember to review it annually to keep it updated. If you have any questions or would like us to cover any Forex-related topic in the next posts, please let us know in the comment box below.
