How Do You Use a Forex Trading Plan? - Forex Trading Plan Example Tutorial
In forex there is no single method or formula that is used for trading the market successfully. The forex market requires traders to learn and acquire the skill required to trade the market successfully. Traders need to learn how to analyze the currency market movements. Traders then need to come up with a plan of how to come up with a way of combining this knowledge and the strategies they have learned so as to formulate their overall trading method.
By coming up with an effective trading plan your success will improve significantly. A forex trading plan will help you to effectively analyze the market and know when the best time to open a trade is and when it is best to close the trade.
Before starting to trade the forex you must be prepared with a forex trading plan. Just like in business where all successful businesses start with a business plan also successful forex traders must start with a forex trading plan.
Sections of a Forex Trading Plan
Currency Pair
The first section of a forex trading plan will specify the currency pairs that a trader will be trading. Traders should specify the currency pairs that are best suited for their trading method. For example a trader may choose to trade only EURUSD because it is more predictable than other currency pairs and therefore the trader will have a better chance of making profit when trading EURUSD as compared to other currency pairs.
Before deciding the most suitable currency pair to trade a trader will have taken time to test their trading strategy on various currency pairs on a practice after which they will choose the currency pair that produces most profitable results. The trader will then list this currency pair on the trading plan as the currency pair that they trade.
Chart Time Frame
The trader will also have to specify the chart time frame they will be using to trade currencies with. For example a trader may find that the best chart time frame for their trading system is the 15 minute chart time frame and therefore they will specify their chart time frame as the 15 minutes chart time frame.
The chart time frame that a trader chooses will depend on the type of trader they are. For day traders who have a lot of time to watch the charts they can choose the 5 minutes or 15 minutes chart time frame and trade with these charts. For swing traders who do not have a lot of time to watch the market they can trade with the 1 hour forex chart time frame so that they can be able to follow the medium term trends that will last for a one or two days.
Forex scalpers on the other hand can trade with the 1 minute chart time frame and trade the short term market moves. These traders will make many trades during the day and just like day traders they will also have a lot of time during the day to watch currency market moves.
FX Trading System
This section will specify the trading system that the trader will be using to trade the market. This section will list the rules that a trader will follow when opening a buy or sell trade. It will also list the rule that a trader will follow when closing their trades - for example it will note the take profit levels as well as stop loss levels that a trader will set after they have opened a trade.
The trader will write-down if they will be using an technical indicator based trading system to generate trading signals or the trader will write if they will be using support and resistance levels to open & close trades or any other method that the trader will be using for trading. For examples a trader might specify that they will be using automated systems & they will write the parameters of the automated bots on this section.
Before writing the trading system that a trader will be using, the trader will have back tested this system on a practice practice account until the time that the trading system is producing profitable trades on a consistent basis and after coming up with a profitable trading system the trader will then write down the trading system on this section of their trading plan.
Mindset
This section will specify the mindset that you will be following when trading so that to ensure that you become successful when trading.
Discipline - This will list that you will be disciplined enough to follow the rules of your system and trading plan. Discipline will mean that you will be patient enough to wait for a trading signal from your trading system before opening a trade. This section will specify that you will only trade the signals that are generated by your system & you will not second guess your system & open trades not indicated by your trading system.
Trade Without Emotions - when it comes to trading the market you should not let the emotions of fear and greed control you when you’re trading. You should always trade based on the rule of your trading plan. Avoid becoming greedy and wanting more profit from the same trade instead of closing the trade at your take profit level.
Money Management in Forex Trading
A trader must specify their money management rules that they will use when trading. For example a trader can specify that they will use a high risk: reward ratio which means they will place their take profit level at two times what they set their stop loss level. This will make their trading strategy more profitable in the long run because they stand to make more money from their winning trades and lose less money from their losing trades.
