What is a Forex Trading Plan?
A Forex trading plan is an algorithm of actions that must be followed during the trading day. It is difficult to imagine a company without a business plan written on paper. So in trading without a trading plan, all your actions are doomed to failure. The lack of a Forex trading plan is one of the reasons why traders lose money. Another important point is that your trading plan should not be in your head, but written down on paper. You would probably be very surprised if you found out that an entrepreneur does not have a business plan or keeps everything in his head. You must understand that no business can exist without a business plan written down in advance. In trading, you need the same approach if you want to become a professional trader and earn a living by doing so. Take a few hours and write on paper a detailed trading plan, so that you can always see it before your eyes, and you can look at it to understand whether it is worth entering the market now and when to fix the profit or loss.
How to Prepare a Forex Trading Plan
Entry signals
Probably each trader was overwhelmed by the same feelings watching the price skyrocketing or dropping, with the irresistible desire to jump in with both feet being sure that this is the time to make real money. In a moment you look at the placed order with no idea how to handle it now, what profit to expect, and what has just happened. Sounds familiar? 99% of traders were in such a situation, particularly on the very first stage of familiarizing themselves with trading.
That is why the Forex trading plan must cover a precise explanation of the entry signals the trader is plotting to employ in the trading strategy. Right after these “beacons” are outlined and written down, make sure to rigorously stick to them. Naturally, the before-mentioned signals have to be as clear as possible to avoid any unpleasant consequences. Strictly speaking, in case there are four price action patterns implemented in your trading strategy, all four of them must be added to the market entry signal of your Forex trading plan.
Exit signals
The same situation is with the market exit signals – all traders need to have a clear picture of what the exit signal is when creating a Forex trading plan. Yes, placing orders in time and choosing the proper assets is vital, but without closing the position in time, all of that will make no sense. Exit signals may even be the most important aspect here since trading is about making money. Consequently, without a smart market exit, you risk losing the position too early and missing the opportunity to get bigger profits being impatient, or just lose it all waiting for too long.
If your trading plan includes exit signals, you will not find yourself in such situations. Any plan will be incomplete without marker exit signals since traders need to have a crystal clear understanding of what profit is foreseen from each trade, otherwise, the feeling of uncertainty will mess the whole trading up.
Stop-loss (SL) and a Take-profit (TP)
Since we have learned how essential entry and exit signals are when it comes to developing the Forex trading plan. They help you strictly adhere to your existing trading strategy, as well as exclude the likelihood of emotional interruptions into the trading process itself. One more essential aspect here is the setting Stop-Loss and Take-Profit for every position.
In fairness, we cannot but mention that setting Stop-Loss levels is much more crucial than Take-Profit. So, when preparing a Forex trading plan, all organized and serious traders have to keep in mind the necessity of placing Stop-Loss. It applies to every position, without deviations and excuses.
Apart from that, the Forex trading plan should include predefined Stop-Loss levels. Reasonably they may vary from asset to asset, but it must be there. On the other hand, predefining Take-Profit is not so significant. Nevertheless, if you want to develop the best Forex trading plan, it is advised to determine the Take-Profit levels prior to placing any position and add that to your trading plan.
A trading plan for Forex traders can change the whole attitude to trading. It turns the mentality upside down, shifting priorities. By creating trading plans, we begin to work effectively and reliably to insure ourselves against accidental losses.
