Building a Winning Forex Trading Plan is Easier Than You Think (2024)

Forex Trading Plan

The common problem that most forex traders deal with when first starting out is the lack of a proper trading plan.

Most traders don’t bother with a trading plan because they think it is going to be complicated. However, that is where they are wrong because it’s easier than you think to build a trading plan!

Nothing in life arrives easily, and forex trading is the same. If you don’t have a clear trading plan or strategy, you will not achieve your desired results. As Benjamin Franklin said-

“Failing to planisplanning to fail.”

The importance of a trading plan

Granted that not many people believe in what Franklin said, but it does make sense, and experienced traders realize this. They know that if they want to earn money from trading in a Funded Traders Program, they will have to select one of these two choices:

1. Methodically follow a written plan
2. Fail at trading

Trading Plan as a Roadblock

The above may sound harsh, but it is the truth – that can be the end of the game. Diving into forex trading without a clear trading plan is like riding a bicycle without training wheels. Few traders realize the importance of a well-defined strategy. Some have a written investment or trading plan. However, experienced forex trades who are consistently earning money will agree that having a trading plan doesn’t guarantee success.

A trading plan is meant to act as a roadblock. It keeps you on track and from losing all your money. A lot of people think they are better traders than they are, and this false sense of superiority in funded trader programs can prove to be fatal. If your trading plan lacks preparation or is based on flawed techniques, you won’t achieve success. However, what you will have is a detailed report that charts your failures, and you can use this to identify your mistakes and correct them.

Documenting your progress in forex trading will help you avoid repeating costly mistakes and improve your strategic ideas. So, if you want to find success in forex trading, a winning trading plan is the best way to go about it. All traders must have their plan, which should account for personal trading goals and styles. You will not find success by using someone else’s trading plan or strategy because it doesn’t have any of your trading characteristics.

Ideas to Consider when you build a trading plan

Avoiding Disasters 101

Treat your trading as a legitimate business. Respect it, treat it properly if you want to achieve success.

To avoid disasters and create a proper trading plan, conventional wisdom suggests:

• Read some trading books
• Buy a charting program
• Open a brokerage account
• Start trading

That sounds like a good plan, but I am here to tell you that this can be a recipe for disaster. It may not be the exact trading plan that will bring you success.

Traders should always do the following:

• Think outside the box.
• Account for market fluctuations.
• Study the market to gauge the potential to reverse or pause always.
• Act based on those principles.

Before you begin trading with a funded trading program:

• Have a solid trading plan.
• Account for a re-evaluation of the plan after the market closes.
• The plan should be flexible and change based on market conditions (You will improve at reading the market).
• Adjusting your strategy with experience as your skill level increases.

If you are a 5ers trader, you can download a free online trading plan in your hub.

Building the Perfect Forex Trading Plan

The best way to build a winning trading plan is to ensure that you have all the essential components in place. Most traders have no idea what to do or how to begin. Fortunately for you, that is what you are going to learn today.

1. Do Your Homework

Before you begin trading –

• Begin your homework before the market opens
• Be vigilant and more informed about what is going on in other markets around the world.- are they up or down?
• Keep checks on how the index futures are performing, like Nasdaq, 100 Exchange-Traded Funds, or SP 500. (The key to gauging the mood of the market before it opens).
• Check on when the earning oreconomic data is coming out and create a list. (Post it somewhere in front of you and decide if you want to trade before a critical report. I would advise minimizing risk – wait until the full report has been released).
• Remember – Professionals place their trades on probabilities. They don’t gamble on their trades.

2. Skill Assessment

Have a good idea of your trading skills.

• Are you ready to test yourself in the market?
• What’s your trading experience?
• Do you feel confident in your understanding of the market?
• Are you able to make decisions without hesitating?

Bear in mind that even professionals find it tough to read the market correctly. If you are trading in the markets, you must be ready to give and take. Experienced forex portfolio managers are always prepared. They take profits from others who don’t have a clear set plan and throw their money away because of costly mistakes.

3. Set Risk Level

• Identify and establish a risk level that you are comfortable with to avoid expensive errors. (Determine this through your risk tolerance and trading style. It can be a part of 1% – 5% of your portfolio on any trading day.)
• Have the discipline to move out and stay out of the market.
• Keep trading if things aren’t going your way because it is better to call it a day and start fresh.
• Don’t be stubborn.

4. Mental Preparation

Be mentally prepared to deal with all the challenges that trading brings you.

• Have a good night’s sleep – to be psychologically and emotionally prepared.
• For mental exhaustion -take the day off to avoid losing money. (You shouldn’t trade when you’re not in the right headspace. Anger, distraction, or preoccupation does not bring good results).
• Some experienced traders create rituals to practice and to enter the market with a positive headspace.
• Ensure that there are no distractions near to where you sit and trade.

5. Trading Preparations

Label these clearly before you begin to trade:

• Minor and major support
• Resistance levels.
• Exit signals
• Alerts for entry

6. Set Goals

Your trading plan goals should be:

• Realistic risk/reward ratios and profit targets.
• Clear – Some traders won’t trade with you until the potential profit is three times more than the risk.
• Setting annual, monthly, and weekly profit goals.
• Re-assess them regularly to be prepared.

7. Keep Excellent Records

All forex portfolio managers are well organized and keep excellent records of all trades they make – winning and losing ones. It provides a reference point for future trades. So they know exactly what they did right and what mistakes they made.

You should write down important details like:

• Targets
• Entry and exit of every trade
• The time
• Supply and demand levels
• Daily opening range
• Market open and close for the day
• Record: comments about why you wanted to make the trade and what lessons you learned from the trades.
• Frequently review trading records to analyze the profit or loss for a system, average time per trade, drawdowns, and various other factors. (Compare them in the future).

8. Set Exit Rules

A lot of forex traders make the error of not paying attention to when they should exit the market. They are busy focusing2 on buying signals because they don’t want to sell if they are down, which would mean taking a loss.

• You must learn how to get over it, or you will not find success.
• Take emotions out of the game.
• Don’t take losses personally.
• Everyone has good and bad days, and even the best professionals lose more trades than they win. (The key to their success is limiting their losses and managing money cleverly).

9. Set Entry Rules

Setting exit rules for the market is all well and good, but you must also create rules for entering the market. Some traders don’t do this and assume that exits are more important than entries. But even traders must know the best time to enter the market. It all depends on your trading style. Traders should set conditions for entering the market and ensure entering when the market is right.

Part of the reason computers are better at trading than people is that they don’t let emotions get in their way when trading. They look at the conditions, and if the market conditions are met, they will enter. Traders don’t do it like this, which complicates their trading and stops them from winning.

The best thing to do:

• Set clear rules for entering the market.
• Don’t get angry at the market if you lose or feel invincible from winning a couple of trades.
• Base all your trading decisions on probabilities.

10. Perform a Post-Mortem

After every trading day:

• Add up your profit and losses.
• Figure out what happened in your trades.
• Write down your conclusions in a journal and check upon them.

Forex Trading Plan – The Bottom Line

A winning trading plan doesn’t always guarantee success. You may have a lucky phase also but try not to let that get to your head by sticking to only what you think works for you.

The key to becoming successful in forex trading is being confident but also re-evaluating every trade! Eventually, you will develop enough skills that you don’t have to doubt your decisions or second guess when you are trading.

You can’t guarantee that a trade will make money because your chances of success hinge on your system of winning, losing, and your skill. It is important to remember that winning doesn’t come without losing, and professional traders only enter a trade when the odds are in their favor. The key to finding success as a trader is to cut your losses short and let your profits ride. You may lose a lot of trades, but if you don’t divert from your trading plan, you will find success as well.

Don’t give up!

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