How to force the market to share money with you regularly: Forex trading plan

For whom this article is?

... for anyone who is just starting their path in the Forex market. Beginners usually do not understand that the Forex trading plan and the rules of trading strategy are different things, and therefore any advice on using it is ignored.

«− The plan? What plan? Do I have a plan? Yes, I have three plans!» − ambitiously stated Mr. Fix, the hero of the famous cartoon film, which became a symbol of unsuccessful planning. Unfortunately, the punishment in the market in form of losses comes quickly enough, but the ability to make an effective scheme of actions gives the trader an indisputable advantage.

Let’s check the mandatory sections of such business plan − in order of importance for real trading.

First of all, you need ...

An optimal setting of the business goals

• financial goals − long-term (at least for 1 year), medium-term (quarter, 1-2 months), daily (special attention!) − it is the short-term objectives that determine the required level of the profit in each transaction;
• general psychological goals − discipline, self-control, confidence;
• control of the trading risk − no more than 30-40% of the deposit amount.

Conclusion: Your business objectives should be real and confirmed by the actual results of the previous transactions if necessary − we should correct them.

I will risk to give an example from personal trading experience.

Forex trading plan as a guarantee of success

A few years ago, on a popular Forex broker, a regular PAMM-project was opened with a low entry threshold for investment, without promises of "super profits" and special trading conditions.

Except for one − the manager set a goal to receive 1% of profit for each trading day with minimal risks. The trader did not advertise himself; he did not communicate at forums; did not give comments and did not explain his actions. This project was unpopular among investors, trading conditions were regarded as unprofitable, the trader was considered ambitious, inexperienced or simply lazy. In the general rating of broker trading account did not rise above 25 positions.

The result?

This PAMM-project closed the trading year with a profit of more than 300% and a maximum (!) current drawdown of 15%. All aggressive PAMM-accounts that were opened simultaneously with him, "left" the market with losses within 2-3 months, and this quietly worked strictly according to plan.

Investors came to their senses, but they were already late. The trader changed the speculative Forex to a more stable stock market, received an invitation from a major US investment fund and lost interest in small investors.

Conclusion: A reasonably designed trading plan should contain optimal trading objectives and then its rigid execution can protect your deposit from losses.

Then you can start the next stage ...

Preparing for real trades

• comprehensive market analysis (mandatory − see below!);
• good physical condition and positive mood;
• comfortable working conditions (without negative factors);
• reliable technical support;
• Forex trading plan (in electronic or visual form − convenient for work).

Conclusion: The quality of each trade depends on the preliminary calculation of all possible situations.

The next main section ...

Personal trading strategy

• parameters of the technical tools (or parameters of the trading robot) for determining the entry points − direction, timeframe, indicator’s signals, graphic designs, price levels;
• conditions for closing deals (indicator’s signals, achievement of the profit levels, stop-loss testing, manual closing);
• the possibility of applying for market/deferred/limit trading orders;
• terms of use for several trading strategies − for each separately.

Conclusion: The analysis and formulation of actions will allow you to assess the probability of success before the opening of each transaction, as well as find weaknesses in the trading system.

Now − the next step ...

Choose a trading asset (or assets)

• trade costs (spreads, commissions, swaps, payment for input/output of funds);
• mode of the most profitable dynamics;
• amount of the margin provision;
• the complexity of the technical and fundamental analysis;
• correlation of the assets and the mechanism of its use;
• technical conditions of the broker (for each asset);
• risk control scheme.

Conclusion: Assets should be adapted for the strategy (see above!), are optimal in terms of the number of costs and the level of risk.

If you have already made a decision, on what exactly you will trade − go to the most important section…

Сapital Management

• distribution of the investments to start/trade/guarantee capital;
• the acceptable (personally for you!) level of risk (common and in each transaction) – in %/points of sale/deposit currency;
• min/average/max volume of the position for each type of transaction;
• actions in case of an entry error, during drawdown periods, when the settlement profit is reached or the loss level is exceeded;
• use of dangerous methods of money management (number of transactions, points or amount);
• the maximum number of the transactions for the period and the minimum level of free margin;
• increase (decrease) in position sizes in the cycle of winning (unprofitable) transactions;
• management of profit and withdrawal of funds;
• grounds for changing the Forex trading plan (for example, skipping a trade signal, if this violates the management).

Conclusion: Personal honesty and discipline while observing the risks in each transaction will save you time, nerves and capital.

Fundamental analysis

• reliability of sources (news, analytics, official reports, statistical reports, economic calendar);
• access to information (paid or free);
• daily volume and mode of work with information;
• methodology for using the results of the analysis.

Conclusion: The Forex trading plan should take into account the influence of the foundation on making trading decisions on the working strategy, for each asset − separately.

Technical analysis

• price analysis on different timeframes (critical levels, max/min, support/resistance, trade volumes);
• graphic analysis (trend direction, trading patterns, "round" levels);
• Take Profit/Stop Loss levels and actions when the price is reached;
• conditions for entry/exit/reversal of a position;
• the sequence of actions in different market conditions;
• analysis of trading results in related markets.

Conclusion: The result directly depends on the technical justification of each transaction and its proper maintenance.

Taking into account the conditions of personal comfort, we choose ...

Trading Mode

• asset volatility in trading sessions;
• the reaction of the asset to fundamental events;
• stability of the broker's work in the required trading period;
• the correspondence of the selected period (day, night) to your physical state

Conclusion: We trade at the time of maximum liquidity for the selected asset or in periods with the greatest number of trading signals.

Analysis of the trading actions

• implementation of the rules of management and profit plan;
• compliance of your real actions with the trading plan;
• the correctness of the signals of the strategy and your reaction to the trading signal;
• error analysis and non-strategy transactions.

Conclusion: Daily mandatory analysis of the actions, regardless of the results of trading, will identify weaknesses, correct strategy in time and open up new trading opportunities.

Adaptation of the trading plan to real conditions

• changing the parameters of the deposit load (the overall risk should be below critical one);
• evaluation of the effectiveness (and, if necessary, replacement) of a trading asset;
• changing the trading regime (in accordance with the psychophysiological type);
• changing the trading strategy − only after thorough testing;
• actions in case of possible force majeure.

Conclusion: The necessary correction and regular (in accordance with strategy) analysis of the trading plan (together with the results of transactions) − are mandatory.

Reminder: your Forex trading plan should allow changes in any section without compromising the final result.

Permanent personal development

• active market research and self-education;
• analysis of your behavior in critical situations;
• measures needed to improve discipline.

Conclusion: It is necessary not only to estimate the profit (or loss), but also to analyze the thoughts, emotions, and situations in which you have violated your trading plan for Forex.

On rational planning, you can also read a very reasonable book.

So all the same: with or without a plan?

Freedom of access to the modern financial market shouldn’t not mean the lack of discipline in your actions. The Forex trading plan details goals and means, strategy and tactics, preparation and implementation of transactions, investment schemes and risk management, analysis of results and methods for solving other problems.

And it's not so important whether you consider Forex a serious business or only an additional income − you can achieve the goal only if all conditions are strictly met, otherwise even the optimal business plan will not bring results.

Try It Yourself

Trading psychology is one of the essential pillars of the Forex success, so even if you are an experienced trader, you shouldn’t dismiss a trading psychology advice.

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Simply download Forex Tester for free. In addition, you will receive 23 years of free historical data (easily downloadable straight from the software).

Grow your patience, boost your trading skills, learn to avoid psychological traps without drawing your live account.

Share your personal experience of creating your Forex trading plan. Was this article useful for you? It is important for us to know your opinion – share it in the comments!