Trading Plan and Strategy - the Same Things?
Novice traders often think that with a good trading strategy they are all set. But a trading style is more of the types of charts you trade, types of trades you open, and so on.
A trading plan will help you determine when exactly to open and close a trade. It helps you evaluate your risks and make conclusions you’ll use for further development. Thanks to a plan, you will reduce your losses and extend your profits.
Moreover, following instructions for any situation, you will avoid emotional decisions, which will eventually improve your final results.
So How to Build That Plan?
We will discuss 5 main things, which every good plan should include:
- When to open a trade?
- Risk evaluation
- When to quit a losing trade?
- Profit evaluation
- Setting long-term targets
Now let’s take a closer look at every step.
When to Open a Trade?
For the first step, you should determine the main factors for your perfect trade and enter the market only if a potential trade fulfills your every requirement.
This will be the basis of your future success. If a trade doesn’t include every single factor you’ve determined, then don’t open it, or your trading will turn into a lottery.
Risk Evaluation
Before you open a trade you should be sure that it is worth it. Evaluate possible gains and losses and decide if you should enter the trade, or not. Even if the potential profits seem to be extraordinary, make sure that you invest the sum that you can afford to lose. If the trade still seems to be very attractive, try opening it with a smaller volume.
When to Quit a Losing Trade?
Losses in the Forex are inevitable. However, not every losing trades is worth closing right from the start. Any moment the market might turn in your favor. For a good trading plan determine in advance a sum you are ready to lose in a single trade. Close the losing trade once the losses reach the set volume.
Profit Evaluation
Same as for a losing trade, you should determine the size of possible gain for every position. When a positive outcome reaches the set volume, you should close it. Don’t follow greed. There is no place for emotions in the Forex.
Setting Long-Term Targets
If you want to learn how to be disciplined enough to become a successful trader, you should definitely set long-term goals. Once you know what you are striving for, you have more chances to step away from trading at the right moment. This way you will avoid unnecessary losses from over-trading.
Another Useful Tip
If you want to reach success, you should learn from your mistakes. In order to do that, try writing down your every trade. This way you will be able to see which positions work for you and which cause losses. After analyzing your history you can make changes in your trading strategy and plan.
Every trader is unique. Later you will be able to adapt this plan for your needs. But if you are a newbie, this plan might become a good basis for a successful start.