Trading in the Forex market involves a steep learning curve
and one of the things you need to learn is how to create a trading plan. This
is an essential part of currency trading yet it’s surprising that many traders
fail to create one before leaping into the markets. This is the reason why over
90% lose money in the end.
A Forex trading plan is a systematic approach to currency trading
which takes into account all aspects of trading. This is usually conducted
through simultaneous application of different systems including the Forex
trading system, emotion management and money management.
Why You Need a
Trading Plan
Considering how volatile and risky the Forex market is, any trader should have a complete trading plan in place. The worst time to make a decision is in the middle of the trade and if you are new to trading currencies, it’s crucial to understand that emotions can sabotage your trades. A trading plan makes it possible for you to decide on your trades rationally without the emotions you get while in the middle of a trade.
Developing a Trading
Plan
Now, developing a trading plan adds another aspect to the logistics. As mentioned, a complete trading plan includes a Forex trading system, emotion management and money management. Each of these aspects will have its own checklists and rules pertaining to the object of their operation.
Moreover, your trading style can determine what kind of trading plan is best for you. To find your trading style, you’ll need to figure out some things about yourself and how you prefer to trade. There are basically three types of traders, namely short term, medium term or long term.
Short Term is
basically a high-frequency day trading. The positions of a short term trader
are usually held anywhere from a few seconds to an hour. In short term trading, traders make profits
by opening and closing positions after gaining just a small amounts of pips,
sometimes even just 1 or 2 pips.
Medium Term, also
known as swing trading or directional trading involves examining the present technical
trends and using it to the trader’s advantage. Swing traders put importance on
how the market will move more than which currencies are going to rise. Like
short term trading, medium term trades can also be held within a few minutes
but can also last for a few hours, sometimes a day.
Long Term trading
on the other hand holds positions for weeks and months. Traders profit on long
term movements in a trade and are on the lookout for major price trends before
taking a big leap.
There are other vital factors you need to consider including your position size, entry point and exit point among many others. Adjust these to your needs and above all, stick to your trading plan. Focus on this when you trade currencies and you’ll soon maximize your success.
