Forex trading plan tells the forex trader what is supposed to be done, why, when, and also how. A good forex trading plan eliminates bad decision making in the heat of the moment where the trader is most likely to fall for emotions. Strong emotions can get in the way of logical and critical thinking when money is on the line, inciting irrational decisions which most times leads to decisions not based on facts.
DEFINITION OF FOREX TRADING PLAN
A forex trading plan is a structured set of guidelines or rules set up by a trader to define his/her trading activity. It is a very useful tool that helps to keep focus on planning and executing a trading strategy. Forex trading should be treated as a serious business, it irrespective of whether it is full time or part time. And just as any other business has plans and goals so should the forex trader. Not only should goals be defined, and identified, there is needed to lay out trading strategies that will be used to reach these goals. For the forex plan to be followed there is need for discipline so each plan should be tailored according to one’s personality and unique abilities.
USES OF A FOREX TRADING PLAN
It is of utmost importance to know that, a forex trading plan should be seen of as a template for trading the markets. Maybe an even better way to describe a forex trading plan is that it is a check list that is a part of the forex trader’s arsenal. This check list should contain each aspect or part of making a trade in a logical step by step sequence which will acts as your objective guide to trading the markets. The one thing that has stood out from experience, is that if anything separate the net winner from the net loser in forex trading, all things being equal, is that the net winner had a trading plan in addition to his other skills. So there are many uses of a forex trading plan, we will talk about a few.
- TO AVOID TRADING WITH EMOTIONS
One reason why you need a Forex trading plan is because you need a way to ensure you are not trapped into trading based on emotion. Forex trading can be an intensely emotional profession when your money is involved, and if you do not follow an objectively forex trading plan that pre-defines all of your actions in the market, you are most certainly going to be a trader who loses money.
- TO KEEP YOU FROM POOR TRADES
When a forex trader has set rules governing his dealings and chosen trade he won’t get involved in, it becomes easier to identify such deals when they present and to avoid them. This will naturally lessen the amount of losing trades you have to get into which will improve your total winning percentage.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.