Sometimes, you can just envy newcomers to the forex market for their energy and ambition. Having read several books on the rules and strategies of trading, they consider themselves Forex gurus and are certain of their success in the market. However, everything is not as easy as it seems. Even savvy traders cannot achieve success and earn a large profit without a clear and detailed trading approach.
What is trading plan?
A trading plan is a source of information that allows a trader to analyze the market and make quick decisions. In other words, a trading plan is a list of tasks, rules, and decisions a trader should follow to trade profitably in Forex.
In order to develop an effective trading plan, market participants should constantly improve their skills and master trading techniques. If you want to learn more about what is a trading plan, go to the InstaForex website.
Why trading plan is useful?
- You have a set of clear rules in case of force majeure
A clear and detailed trading plan can help you understand how to trade under any circumstances when the market is unpredictable.
- You can conduct a thorough analysis of the market
A detailed trading plan can help you analyze the forex market in depth, protect yourself from trading mistakes, and assess your profit and losses ahead of the trading session.
- You can control your emotions
Any decision of the trader should be part of the trading plan. Market participants should establish a clear goal and follow the rules set out in advance. This eliminates any subjectivity in trading and helps the trader effectively control emotions.
- You can avoid overtrading
CFD traders without a trading plan often make rash decisions and incur losses as the result. They try to offset them by opening a large number of trades of greater volume. This, in turn, leads to heavier losses.
- You can manage risks
An efficient trading plan guarantees the trader stability of the trading account in the long term. When a market participant opens a trade with a risk above 1% according to the trading plan, other open positions help regulate this risk.
How to map out trading plan?
In order to formulate a perfect plan, the trader should take into account 5 key aspects which are the main condition for succeeding in the market.
- Be mentally prepared for trading
Listen to yourself: How are you feeling? Are you feeling well? Have you slept well? When traders are not mentally prepared for trading, they will definitely incur losses. Many professionals prepare for the upcoming sessions by reading motivating trading and philosophy quotes.
- Catch up on the news
Study the macroeconomic calendar, mark possible setups on the chart, check the analytics. Everything is important in Forex: the fundamental background, world news, the situation in other markets. You can find all the up-to-date information on the InstaForex website. Many savvy traders refrain from entering the market before the release of important reports, statistics, and political statements to avoid unnecessary risks.
- Be prepared for force majeure
Every trader must know exactly what to do in case of force majeure events such as power outages, Windows problems, and Internet disconnections. Panic and confusion are the worst enemies of deliberate and meaningful trading in the market. Traders should not allow external circumstances to take them by surprise.
- Assess risks
Traders should assess the risk per trade from the total amount of capital before entering the market. Forex professionals say that the acceptable level is 1%–5%, but the individual amount of risk depends on the trading style of each trader. Risks are the only thing that market participants can control in an uncontrolled market.
- Set short-term and long-term goals
You should also estimate a possible (but realistic) profit and the risk/profit ratio before entering the market. Firstly, determine your weekly/monthly/annual profit and its percentage of your account balance. Then, carefully monitor its dynamics. Having long-term goals helps traders go through periods of financial losses and drawdowns.
Summary
An efficient plan makes trading in the forex market disciplined and predictable. We have shared with you the rules for achieving success in Forex. Now, it is up to you! Conduct a thorough analysis of the market and draw up your own trading plan for the next week. Select trading instruments in advance and decide on the number of trades you would like to open.
You will need a trading account to do this. If you don't have one, open a live trading account with InstaForex or test your skills using the demo account first.
Now is the time to put the acquired knowledge into practice! Good luck with trading!
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