Creating a trading plan is just a part of your strategy to combat the risks involved in currency trading. If you trade without a plan, you are like finding treasure minus the map. There will be a lot of loops before you succeed and most notably, you will be creating the same mistakes all over again.
But with a trading plan, you will have clear step by step details on how you should implement your goals. You will also remove unnecessary stress throughout the trade because you will already know the scenario in each trade.
Creating a Trading Plan
There are 4 parts to consider when creating a trading plan – methodology, money management, trading psychology, and tools.
The Methodology Plan
This plan is considered as the framework of your plan in trading. if you cannot thoroughly make these considerations then your plan will be less fluid.
Factors in trading that needs to be considered
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- The type of trading system to use
- The trading parameters
- The time frame
- Full time or part-time trading
- Where should you place your stop loss? Are you also going to use indicators?
- Don’t overthink and keep everything simple.
- Think of the possible scenarios.
- Know what to do when you reach a particular signal.
- Log the movements that were not successful and those that we’re able to succeed.
Money Management Plan
Another part of a trading plan is the Money Management Plan. It is known as the most important part of the trading plan. This time, you should understand the risk of ruin related to Forex trading. To calculate the risk of ruin, all the numbers above zero are considered ‘too high’. That being said, you will blow up your trading account within days, weeks, or even months.
Factors in trading that needs to be considered
- Positions sizing should be based on the stop-loss plan. Write that and never forget to stick with it.
- The capital you will need
- The capital at risk
- The capital that you are willing to lose
- The plan for obtaining profits
If you are very concerned with the capital and it burns you through, you might be considered stepping back because there’s a huge possibility that you have already crossed over to gambling. When you throw money into the market without a proper plan, it is considered gambling.
Trading Psychology
This part is the journaling section. Your journals are your mental support system. It keeps your mind clear and clarity brings forth a trader good in problem-solving. Some traders might find it less important but trading psychology plays a vital role in trading.
The Tools to Use
Finally, what are the tools that you are going to use? If you have a budget, you might want to purchase a computer that will only be used for currency trading. It should be clutter-free. Also, an alternative power source is very important and good internet service as well. Portable wifi to keep you active all the time will also be useful in case of a power shutdown.
