Why Do You Need A Forex Trading Plan?
James Woolley
June 30, 2009
It's common knowledge that the vast majority of forex traders lose money, but part of the reason for this is because they never use any kind of trading plan. The fact is that the forex markets can be brutal, but they can also bring you huge riches if you are prepared to put the work in and treat it as a a serious business.
It's all too easy to approach forex trading with a gamblers mindset, ie taking big risks and playing with money you can afford to lose, but gamblers generally don't make money in the long run. You need to treat your capital with respect and aim to grow your capital slowly and steadily because this will still bring you huge wealth if you are successful.
Your trading plan should incorporate a profitable trading system first and foremost. Now obviously this is easier said than done but it's important to note that you don't necessarily need to try and find a system with a 90%+ success rate. You can still make money with a system that generates winning trades say 50% or 60% of the time providing your winning trades always exceed your losing trades.
For instance if you use a system that employs a 10 point stop loss and targets 20 points per trade, then you would still have a profitable system on your hands even if you only had a 50% success rate.
Another important part of your trading plan is discipline. This is an attribute that will often separate the profitable traders from the unprofitable traders. So you should do everything you can to maintain your discipline at all times. If you have a winning system stick with it, and don't be discouraged if you have a few losing trades. It happens to us all. Just make sure you don't try and chase losses as this is the worst thing you can do.
Finally your trading plan should be adaptable and open to change. You may well have a profitable trading system in place but market conditions can easily change. For instance the forex markets may suddenly see increased volatility, which may in turn make your trading system less successful, so don't get complacent if you think you have a profitable trading system. Market conditions change all the time so you always need to keep on the eye on the markets and change your trading system if necessary.
So the point is that if you want to make a lot of money from forex trading, then you need to have a solid trading plan in place, otherwise you are almost certain to join the vast majority of people who end up losing money.
Click here for more currency trading tips and to learn all about what you should be looking for when choosing from one of the many different forex brokers that are available to you.
It's all too easy to approach forex trading with a gamblers mindset, ie taking big risks and playing with money you can afford to lose, but gamblers generally don't make money in the long run. You need to treat your capital with respect and aim to grow your capital slowly and steadily because this will still bring you huge wealth if you are successful.
Your trading plan should incorporate a profitable trading system first and foremost. Now obviously this is easier said than done but it's important to note that you don't necessarily need to try and find a system with a 90%+ success rate. You can still make money with a system that generates winning trades say 50% or 60% of the time providing your winning trades always exceed your losing trades.
For instance if you use a system that employs a 10 point stop loss and targets 20 points per trade, then you would still have a profitable system on your hands even if you only had a 50% success rate.
Another important part of your trading plan is discipline. This is an attribute that will often separate the profitable traders from the unprofitable traders. So you should do everything you can to maintain your discipline at all times. If you have a winning system stick with it, and don't be discouraged if you have a few losing trades. It happens to us all. Just make sure you don't try and chase losses as this is the worst thing you can do.
Finally your trading plan should be adaptable and open to change. You may well have a profitable trading system in place but market conditions can easily change. For instance the forex markets may suddenly see increased volatility, which may in turn make your trading system less successful, so don't get complacent if you think you have a profitable trading system. Market conditions change all the time so you always need to keep on the eye on the markets and change your trading system if necessary.
So the point is that if you want to make a lot of money from forex trading, then you need to have a solid trading plan in place, otherwise you are almost certain to join the vast majority of people who end up losing money.
Click here for more currency trading tips and to learn all about what you should be looking for when choosing from one of the many different forex brokers that are available to you.
Print
Email
