It is common knowledge that all forms of financial trading involve risk, and forex trading is no exception. And the first and most important step to being successful in Forex trading is a solid trading plan.
Serious forex traders like me who make a living from trading forex treat this as a form of “business”. As with all offline business models, a “trade plan” is like a “business plan”. Imagine you want to borrow money as an investment for a new company.
Would you give your hard earned money to someone who doesn’t even have a viable business plan or who says they’ll start a business out of their guts? Logically, it is impossible for someone to instinctively start a business and trade with their hard-earned money on their own.
Unfortunately, the reality is that most new traders tend to start trading just this way. Beginners often have no trading plan or agenda at all. In fact, most inexperienced traders have little or no good reason to enter a trade.
So how do you hope for Forex trading success when you have no idea what you are doing?
Fortunately, it’s not that difficult to come up with a trading plan.
There are several key components of a trading plan in my book, including:
Trade goals and objectives.
Currency pairs to trade and when to trade.
Proper money management.
Effective trading strategy.
Trade analysis and reflection.
Trade goals and objectives
First of all, ask yourself why you are trading.
What are the goals and objectives of trading? How much return on investment do you want to get per month? Are you going to be a day trader or a swing trader?
These are common questions that you should know before you start trading.
Next, you need to define your trading goals and objectives. Most beginners have completely unrealistic goals. I actually met a new trader with no prior trading experience, bought a best-selling Forex Trading eBook on the internet, and promised that he would be able to convert his initial investment of $ 10,000 into $ 100,000 within a year. This is possible, but very unlikely. These unrealistic expectations are often the weakness of most beginners.
In my experience, if you can break it in the first year, give him a round of applause. Most of the beginners I know can’t get there.
Which currency pairs to trade and when to trade
For some strange reason, most traders tend to trade their own currency. Maybe this is a way of showing “patriotism” or something.
Proper money management
Money management is perhaps one of the most important aspects of trading.
Do you want to be a fantastic trader but are you using poor money management? If you have 9 small wins and 1 large loss, virtually all wins are lost. Or maybe you want to be an average trader, but with careful money management, you can make a decent profit even if your chances are different from yours. I think the answer is very clear.
Even the best traders will eventually blow their accounts if they don’t properly manage their level of risk.
Most successful traders are only willing to risk 1-3% of their account assets on each trade. This means you can stay “in business” longer in the event of damage.
effective trading strategy
Another aspect of successful Forex trading that is most important to traders is the trading strategy used.
It cannot be emphasized enough that there is no such thing as the “Holy Grail” of Forex trading and there is no perfect trading strategy that guarantees you 100% profit every time.
Traders should focus on using trading strategies that enable “edge” trading. In other words, it’s a strategy that builds odds in your favor so you can win more than you lose in the long run.
Without an effective trading strategy, proper money management will mean a loss of capital on your account, but slowly but surely.
The mindset of trading is related to the thoughts, habits and feelings of the trader. It is by far the most important component that determines the success of Forex trading. The four human traits “greed”, “hope”, “fear” and “ignorance” are always present in every transaction we make.
Without a well-trained mindset, beginners tend to change their strategy when they experience a recession.
Payouts are common and can happen to the best traders. So, let’s get back to basics and not interfere in trading plans that may result Make ns successful in the long term.
The foreign exchange market is not only the largest financial market in the world, but also the greatest mirror of our soul. Trade analysis and reflection
The final component of a good trading plan is to keep a journal of all of your trading results.
First of all, you can use a spreadsheet to keep a simple record of the trades in terms of currency pairs traded, entry time, reason for entry, profit and loss, and more.