Why You Need a Trading Plan ?

Perhaps one of the most significant tools that a forex trader who is more profitable than not, has in his tool box is an operational trading plan which is adhered to. Many traders fall into the trap of putting off developing a plan until it is too late or they develop a plan and it gets put into a drawer and gets forgotten about.

Self-discipline is the most difficult part of a trader’s daily duty. Without this the trader cannot gauge whether he is trading objectively or he is trading using his emotions or gut feelings. That is why a trader must have a trading plan that he uses and refers to on a regular basis to make sure that he doesn’t stray from the guidelines he has set himself.

Writing a trading plan is a self confirmation that you a trader is serious about being accountable to something which in effect is a business. There is no-one else for the trader to be accountable to, just himself and his business. Once a trader loses this sense of accountability and usually this is because he doesn’t follow a trading plan, the trader is in danger of losing his capital.

A trading plan helps prevent a trader from over analyzing the market. Once the trader is happy and comfortable working with a few key indicators and is able to identify trading signals from charts there is no point in going back and using a whole new set of indicators as a double check on the trading signal. The worst thing a trader can do is push the market, patience is a key virtue and waiting for the best entry point will improve a trading record and instill a certain amount of confidence.

Even when your win/loss ratio improves keep to your trading plan and keep being patient. A trader should feel confident but not be overconfident as that is where mistakes are made and trading plans are pushed aside. If you have a euphoric feeling, then simply walk away from the market for half an hour or so. Refer to your trading plan, calm yourself down and when you are ready continue trading. You will soon be consistently winning.
Best Trading Strategies
There are many forex trading strategies which could be considered good or the most successful but there is not one trading strategy that stands out as being the best of them all. Probably the best strategy open to a trader is to focus on the best methods of controlling and managing your capital. The best trading platforms don’t guarantee the trader profits it’s the trader that has to manage his capital and bring in the profits.

One of the best strategies for making money is to avoid making losses. This might sound obvious however many traders don’t do this. New traders tend to go for the big trades and risk too much of their capital on one trade. Concentrate on several small wins rather than one big one. In that way you could completely eliminate loss because you are not investing too much capital. The correct strategy is to focus on small wins and not big wins and avoid big losses. A big loss is upsetting and can cause a panic attack. You will then start to focus on winning the money back and start to take more risks, utilize more capital on bad trades until in the end you are broke.

Never go against the trend. Most forex trading strategies and forex trading systems focus on identifying trends. This is the right thing to do as going against a trend could result in your capital being wiped out.
Creating Profitable Forex Trading Systems in Five Easy Steps
The old adage, that if you want something done correctly then do it yourself holds true when it comes to developing a trading system. You shouldn’t really rely on others to build your own trading system because each trader trades in a different way and feels more comfortable with different indicators.

First of all a forex trading system should be simple. Don’t develop a system that has so many rules that it gets complicated and you start making mistakes and losing money. The trading system needs to build up profits and also cut out losses. To do this you need to have a system that rides the trends and gets you out of a loss position very quickly. This means you need to build a system that follows the long term trends and doesn’t look for small profits because those small profits don’t ever cover those small losses. It’s the profits made on the trends that are big as trends can last for days, weeks, months and even years.

So what are the five easy steps to creating a profitable trading system?

1. Keep it simple and don’t have too many rules. A few good robust rules will suffice. Make sure you have some sound guidelines for your money management system. Things like how much capital are you going to risk on each trade. Where are you placing stops and limits? On which situations do you move your stops and limits?

2. Be on the watch for the long term trends and use your charts to be able to time your entry. Make sure you are looking at trends that last a month or two not just a few days.

3. Trade using the breakout method and build your system so that you recognize when a currency pair are going to break out. A breakout is when a currency pair has been trading in range for a few days and suddenly it makes a big move either upwards or downwards and meets resistance/support then retraces and makes a further move and meets resistance/support again before retracing and breaking out of the range. The actual definition of a breakout is when a price breaks an important high or low and then makes a new high or low. Most of the richest and most successful traders in the world trade on breakout systems.

4. Use your technical analysis indicators to give you the entry point timing. You can use Stochastics to confirm the breakout and also use the Bollinger band as a filter indicator to time your entries and your exits into profit.

5. Make sure your money management rules are robust so that you put your stops in the right places especially if you want to avoid losing too much on a false breakout.

With a good system in place you will be able to make more profits, trade less frequently and rarely have a heavy loser.