How to make a trading plan for a trader?
What is a trader’s trading plan? How to make a forex trading plan? You will find the answers to these questions in this article.
Welcome, gentlemen traders! In the last article, we discussed important topics such as money management and the psychology of trading . Today we have an equally important topic - the drafting of a trading plan for a trader. Many traders do not develop a forex trading plan and in vain, because the effectiveness of the strategy, that is, the size of your profit, depends on it. Trading in accordance with your trading plan eliminates emotions and allows you to trade on the machine. You know exactly when to open a deal and when to close it, at what hours you should not trade and much more. In today's article you will learn what a trader’s trading plan is and how to make it.
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What is a trader’s trading plan?
The main task of the trader’s trading plan is to avoid possible mistakes in trading, save capital and increase it. Do not confuse a forex trading plan with a strategy. A trading strategy is a set of rules for opening and closing deals. A trading plan for a trader is an integrated approach to trading in general. When you have a trading plan, you know exactly where you are going. This is the navigator of all your actions. Before you start trading, you must answer a number of the following questions:
- Why did you decide to become a trader (free schedule, independence, new knowledge, high profits, excitement, etc.);
- What type of trader do you consider yourself?
- What are your strengths and weaknesses?
- What kind of profit you want to get (from each transaction or for a specific period);
- What are your trading goals (year, month, week, day);
- With what tools and when you want to achieve these goals.
You must honestly answer yourself these questions. On this depends the success of your Forex trading.
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How to create a trading plan for a trader?
First of all, you must determine what goals you set yourself from Forex trading:
- Get a fixed income per month (analogous to wages);
- Get additional income to your basic wage;
- Accumulate for a specific purpose (for a car, a trip to another country, an expensive watch, etc.);
- Provide a decent retirement;
- Cover your debts.
In the latter case, we do not recommend that you start trading on Forex, as this is a complex mechanism, and trading should not be perceived as a monetary printing press. Remember the main rule of trading on Forex - risk only that you do not mind losing. And if you are trading on the last money in the hope of earning and covering your debts, then you will fail. Any insignificant loss will knock you out and you will start to make mistakes.
After you have decided on the goals of Forex trading, you need to understand what type of trader you are:
- Conservative (5% profit per month is enough for you, since you know that in a year it will bring you 50-60%, which will not give any bank deposit);
- Aggressive (you want to get 100% profit per month and are ready for great risks);
- Mechanical (it does not matter to you what is happening in the market, you have your own strategy and you follow its rules clearly);
- Discretionary (you make a decision based on personal trading experience and intuition - available only to experienced traders).
Based on this, you need to choose the trading style that matches your type of trader:
- Scalping is an aggressive trading method, when you sit all day in front of the computer and make over 100 transactions per day in order to earn several points from each transaction;
- Intraday trading is a less stressful trading style when all transactions close at the end of the day, regardless of current profit or loss;
- Day trading - you make few trades, but keep them for a week or more, and at the same time have a lot of free time;
- Position trading - you make one deal and keep it for several months.
If you are not able to control yourself and easily give in to excitement, then you should not go into scalping. Or if you have $ 500 on your account, and you want to trade positionally, you should understand that in half a year you will have $ 50-100 and you will most likely be disappointed. Therefore, it is necessary to weigh everything well and choose the trading style that suits your type of trader, emotions and account size.
An important factor in successful trading is a positive attitude. If you are not in the mood, then you are likely to lose losses. Therefore, you should write a list of circumstances during which you will refrain from trading on Forex, for example:
- if you do not get enough sleep, you are tormented by insomnia;
- you have a cold and you feel unwell;
- other things distract you from trading;
- you are experiencing financial difficulties;
- You are irritable and overwhelmed with emotions, etc.
Remember that the market will always and never get anywhere from you, but from your negative attitude you can make mistakes and get a loss. Make yourself a day off, chat with friends, solve all your business, or just take a break from all your thoughts and go back to the trade when you:
- calm and nothing bothers you;
- slept well and well;
- are mentally prepared for trading.
Write out your trading goals for the year, quarter, month, week, and day. What percentage of the profits you can get? This should be a real figure. If you set yourself a goal - 100% per month and you do not achieve it, you will be disappointed, and these are already negative emotions, and we again return to the previous point.
In addition, you must set limits on which you will limit trading. For example, you set a loss limit of 5% per day. If you have reached this level, then you must stop trading to limit the growth of your losses. Or you set a daily profit limit of 10% of your deposit, and when you reach this level, you stop trading to save the profit earned for that day.
After that, you need to decide what tools you will trade in order to achieve your goals, that is, you must form your investment portfolio, for example, 70% currency pairs, 15% gold, 10% stocks and 5% - indexes. And also on what timeframes you will trade.
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What does a trader’s trading plan look like?
Here is a sample list of questions that a trader’s trading plan should answer, after you have found a strategy that fits your trading style, and also determines your goals and trading tools:
- At what time you should trade (for example, from the beginning of the opening of the London trading session to the first half of the American trading session);
- At what time to restrict trade (for example, during the release of important economic news);
- How much to trade (in accordance with your money management);
- When to open a deal (which indicators or candlestick patterns should precede this);
- Which strategy signals should be ignored;
- Where to place the stop loss and take profit;
- When to transfer a deal to breakeven;
- How to take profits (when a take profit is reached, using a trailing stop, when an opposite signal appears, etc.).
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In each trading plan of a trader there may be different questions, but all of them should eliminate the ambiguity of their understanding. In essence, a trader’s trading plan is an algorithm of actions that you should follow as a trading robot. You do not have to hesitate for a second and not give in to emotions. If there is an action in your trading plan that you must do, then you must do it without thinking. If at least one criterion does not fit the execution of this action, then you should ignore it. You will analyze your actions later in the transaction log, which we will discuss in detail in the next article.
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