It is very expensive to create a mistake in Forex trading. Because of this, it is very important to plan your trades and also required as a form of strategy to achieve your goals. In this article, we will discuss what a trading plan needs to be or let’s say the group of rules that the trader should act accordingly.
The trading plan, together with the trading diary and the trading list all helps a trader become better and more disciplined. These things also help in the proper use of time, money, and emotions.
Describing the Trading Plan
A trader without a trading plan has a 100% chance of losing in the market. This rule is confirmed so many times already. Traders who are prone to losses surely don’t have a trading plan. They enter and exit the market based on their intuition. Some have a trading plan but they tend to neglect it. Discipline is particularly the basis of trading.
What are the important points of a trading plan?
There are five elements of a strong trading plan. Each of these points answers the following questions;
- Should I trade in the market now?
- What is the best direction to trade?
- What are the ways to determine the entry point?
- How much risk can you accommodate?
- How should I determine the appropriate position size?
The answer to the questions mentioned above is the skeleton of a trading plan. Each of these points details the right approach that you should make when trading. After all, not all trading points have equal importance. Some have to be adjusted according to your trading style while others cannot be changed in any way.
5 Forex Trading Points
Point 1: Should I trade in the market now?
This first point lets you understand if analyzing the financial instrument makes sense as of the moment. If you think that you cannot trade now, then what’s the point of determining the entry and exit points?
Such things can happen if there is no direct trend in the Forex market or it becomes too late to open a trading position. During the time when the market goes flat or in a triangle, it becomes undesirable to trade. There are such instances and trading in the market with such conditions will only result in losses.
Point 2: What is the best direction to trade?
If you determine the first point then you now have to decide on the direction of your trades. Should it be bullish or bearish? These price patterns help in determining the trend direction of the market as well as the time frames.
Point 3: What are the ways to determine the entry point?
Determining the entry points gives you a clear vision of the market process. Determining the entry points will also discipline you and trade strictly according to your trading plan.
Point 4: How much risk can you accommodate? Point 5: How should I determine the appropriate position size?
The last point is combined because they are known as the money-management and the risk management plan. If you choose to ignore these points then losses are guaranteed in Forex Trading.