How Do I Use a Trading Plan? - Forex Plan Example Lesson Tutorial

In there is no single method or formula that's used for trading the market successfully. The market requires traders to learn & acquire the skills required to trade the markets successfully. Traders need to learn how to analyze and interpret 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 chances of being success will improve significantly/greatly. A forex 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 you must be prepared with a plan. Just like in business where all successful businesses start with a business plan and also successful traders must also start with a trading plan.

Sections of a Trade Plan

Currency Pair

The first section of a trading plan will specify the currency pairs that a trader will be trading. Traders should specify the currency pairs that are best fitted for their method. For example a trader may choose to trade only EURUSD because it is more predictable than other currency pairs & hence 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 strategy on various currency pairs on a practice after which they'll choose the forex currency pair that produces most profitable results. The trader will then list this currency pair on the trading plan as the forex 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 strategy is the 15 minute chart time frame and hence they will specify their chart time frame as the 15 minutes trading chart time frame.

The chart time frame which a forex 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 select the 5 minutes or 15 minute chart time frame & trade with these charts. For swing traders who do not have a lot of time to watch the market they can trade with the 1H 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.

Trading System

This section will specify the trading system which the trader will be using to transact the market. This section will list the rules that a forex trader will follow when opening a buy/sell trade transaction. It will also list the rule that a forex trader will follow when closing their trades - e.g. it will note the tp order levels & also stop loss order levels that a forex trader will set after they have opened a trade position.

The trader will write-down if they will be using an indicator based system to generate signals or the trader will write if they will be using support & resistance levels to open and close trades or any other method the trader will be using for trading. For examples a trader might specify that they will be using automated trading systems & they'll write-down the parameters of the automated robots on this section.

Before and Prior to writing the system that a trader will be using, the trader will have back tested this system on a practice demo account until the time that the trading system is producing profitable trade positions on a consistent basis & after coming up with a profitable system the trader will then write down the trading system on this section of their plan.

Mindset

This section will specify the mindset that you will be following when trading so that to ensure that you as a trader become successful when trading.

Discipline - This will list that you will be disciplined enough to follow the system rules of your system and plan. Discipline will mean that you will be patient enough to wait for a signal from your system before opening a trade. This section will specify that you will only trade the signals which are derived & generated by your system and you will not second guess your system & open trades which are not indicated by your trading strategy.

Trade Without Emotions - when it comes to the market you should not let the emotions of fear & greed control you when you're trading. You should always trade based on the rules of your trading plan. Avoid becoming greedy and wanting more profit from the same trade instead of closing the trade transaction at your takeprofit level.

Money Management in FX Trading

A trader must specify their equity money management rules that they will use when trading. For example a forex trader can specify on their forex trading plan that they will use a high risk reward ratio when trading currencies and what that means is that a trader will set their take profit levels 2 or 3 times higher thatn their stop loss levels thus ensuring from their winning trades they make more and from their losing trades they lose less - this is what risk:reward ratio is all about. Using this risk:reward ratio trading tool and including it in your trading strategy will make your strategy to be more profitable in the long run.

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