How to Build a Successful Trading Plan?
The forex market can be highly unpredictable but one thing that should never be a hit and miss is your approach towards it. Because it may be possible to win a few trades randomly, however, to be able to win consistently, every trader needs a trading plan.
A trading plan is like a framework that guides you through your entire trading process. Therefore it should be built around your personal goals and objectives. In general, your trading plan should include all the rules that you will follow from the time you open your trading positions till you close them.
If you are someone who wants to make a trading plan but not sure where to start, here’s a five step guide for you:
- Define your Goals
In order to have desired outcomes, you should know what you really want to achieve. Goals give you direction. Set clear, achievable and specific trading goals. It will also help you to filter out the potential trades because if the potential profit of a trade doesn’t correspond to your goals, you can simply avoid it. Set daily, weekly, monthly or annual goals depending on your trading style.
- Build a trading strategy
A trading strategy includes but is not limited to defining the holding period of a trade. It also involves your approach towards identifying high probability trade setups. Some traders use technical indicators to assist with their decisions whereas some traders may choose to use trading signals. No matter which approach you are going to use, it should be clearly defined in your trading plan.
- Choose a reliable broker
The broker you choose should be in accordance with your goals and your trading strategy. For instance if you choose to be a day trader, you would require a broker with low spreads and commissions. Moreover, thoroughly test a broker first on its demo account or micro account, before you start using it full time. Few reliable brokers offering micro accounts are:
- Finprotrading – $5
- Coinexx – $5
- NPBFX – $10
- Litefinance – $10
- Turnkey Forex – $10
- Eaglefx – $10
- LQDFX – $20
- Weltrade – $25
Take your time to finalize a broker after extensive research and checking and comparing their trading conditions.
- Know your risk tolerance
Know how much you are willing to lose per trade. The risk tolerance can vary from trader to trader and you must know what’s your limit. It will help you to understand a suitable level to place stop losses and also to apply other risk management techniques to minimise the downsides of losing trades.
- Set Entry and Exit Rules
At the core of a trading plan should be the rules for entering and exiting a position. You can use simple support and resistance levels or you can rely on a more mathematical approach like fibonacci retracements to pinpoint where to place orders for market entry, taking profits and stop-loss orders. Remember to not only concentrate your efforts on entry points but also have clear exit rules before you enter a trade.
- Backtest your trading plan
Laying out trading rules is important but testing the viability of your plan is also equally important and there’s no better tool to do that other than a demo account. Before using any strategy on a real account, use it on a demo account until you achieve confidence in it. You can also replace demo accounts with a micro account to have a better idea.
Remember, your first trading plan won’t be perfect. You have to refine it a number of times by adding the things that work for you and discarding that doesn’t. Therefore, track your progress daily and make alterations whenever needed.
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