A forex trading plan is a personalized plan that informs a trader’s trading actions. Because a trading plan is personal, it incorporates that trader’s unique personality, his own personal trading rules, as well as his own system of managing risks.
Every successful trader must incorporate his or her own trading plan into their trading strategy. The main purpose of a trading plan is to minimize errors, and therefore, minimize losses.
Every trader is vulnerable to the many emotions that come with trading. If we allow our emotions to dictate our trading decisions, then it is very likely that we will make irrational decisions that are based solely on emotion, rather than on sound trading practices.This is where a forex trading plan becomes essential and highly recommended. A forex trading plan will guide a trader through the trading process, allowing him/her to make rational trading decisions even in periods of strong emotional feelings. The fact that there is a clearly defined plan of action in place, minimizes the chances of making poor trading decisions.
A forex trading plan tells the trader what to do under any given trading circumstance. It therefore eliminates the need to make quick decisions that are not necessarily in the trader’s best interest. Apart from describing how to enter and how to exit trades, a forex trading plan also includes trading analysis, trading executions, risk management and more.
It is important to note that a forex trading plan is only as good as its execution. If the plan is not executed consistently, the trader will not reap the full benefits of the plan. A good plan takes time to come together and is usually the result of trial and error over a certain period of time. The logging of trades is a great way for traders to improve their trading skills over time, as they note what strategies prove to be more effective under given trading market conditions. A forex trading plan is therefore like a market blueprint that a trader uses each time they trade.
The best forex traders understand that successful trading requires discipline. Just as a soldier has to be disciplined in order to win a war, so does a forex trader require discipline on the battlefield of the forex markets. There are certain procedures that must be followed, and certain steps that must be taken regardless of the perceived circumstances. A good forex trader knows that it is difficult to win at forex trading without a solid forex trading plan that is executed consistently.
A good trading plan should include a checklist of items, including things such as market conditions to look out for before entering a trade and so on. The trader should be able to tick off all the items on their checklist each time they make a trade. The ability to do this means that the trading plan is actually being executed. Apart from the checklist, the forex trading plan should also include a guide of what to do under what circumstances. The best forex traders all make use of a solid forex trading plan.