Do you know what is trading plan? Trading plan in forex is very important for all traders, because although you having the best system trading and strategy trading, without trading plan hence will mess up your trades.
Similarly, when an army leader is about to fight, he must make preparatory strategies. Forex trading like the war between buying and selling requires the right trading plan.
For a forex trader, the trading plan is very necessary to obtain profit consistently. One of the factors of success in forex trading is discipline.
Through a trading plan correctly and objectively, a trader can practice discipline according to the rules in his planning.
In addition, a trader has been responsible for himself by making a trading plan.
If the trading results are not as expected or if the direction of market price movements is contrary to predictions, traders can immediately take the best steps on the trading account without hesitation and panic.
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What does a trading plan look like?
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Literally, the definition of a trading plan is as a plan to transact in the forex. This trading plan very simple in the form of a formula or checklist of things to do during the transaction.
Although it looks simple, many things a trader does during trading. With price fluctuations, market surprises are unexpected, even traders must make the right decisions in a short time.
If the decision is not appropriate, the result is the loss obtained. Of course, no trader wants to lose.
The trading plan contains the decisions that the trader wants to take. Because when it is made, there is no transaction position so that the objective and not disguised by trading emotions such as panic or even greed.
Because all decisions taken while conducting transactions are irreversible. For example, if a trader buys a certain position at a certain price. Then once open trade, hence the profit or loss generated cannot be canceled.
Why do you need a trading plan?
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A trading plan will protect you from making reckless decisions. In addition, it also will make your trading simpler than if you do not have a plan at all.
Maybe you ever used a Google Navigation facility that functions as a GPS. With Google Navigation, you will be guided if you want to go to a place that you did not know before.
You just enter your current location and enter your destination. Then Google Navigation will provide the best route and directions to get to your destination.
You will be given instructions on the route to be taken, for example, “100 meters, turn left, continue straight” and so on. You just follow it so you can minimize the risk of getting astray.
Your trading plan functions similar to the route and directions.
I will show you where you are now and help you to achieve your goal as a trader, which is a getting profit consistently.
Trading without a trading plan is almost as bad as traveling without knowing the direction and location of the destination. Your goal of trading is to achieve consistent profit, but it is nonsense if you do not know how to achieve that goal.
As a result, instead of getting a consistent profit, you consistently destroy your trading account. With always trade based on a trading plan, you will know what you have to do.
You will also find out immediately that it turns out you are walking in the wrong direction. Also, have a standard for measuring your trading performance. You will always know what you have to do if you are “misguided”.
The trading plan will also help reduce the potential for stress and emotional trading. Indeed you can, trading without a trading plan, but your trading style will be reckless.
Buy and sell are only based on instincts or signals that are not clear. That’s not trading. That’s the same as gambling
What is a good trading plan?
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Forex trading is one sector where the market can change significantly in a short time.
The market is very dynamic, even on some occasions it can be said to be ‘wild’. If you cannot adjust to the super-dynamic market changes, you will be overwhelmed.
To anticipate you need a good trading plan.
You have to design in such a way that armed with the trading plan you will still be calm even when facing extreme changes in the situation.
The trading plan that you have should be as detailed as possible.
Thus every action you will take has a clear basis, such as:
- How much risk is faced?
- What is the potential profit?
- How many lots must be opened?
- Basic decision making (buy, sell, or closed position).
The more detailed your trading plan, the easier you are to make decisions in forex trading.
For example, you do forex technical analysis like this.
“The price is moving in an uptrend. Bullish intraday bias. The correction has taken place in the Fibonacci Retracement area range 38.2-61.8.
Bullish signals are seen from hourly stochastic and CCI. Area SL 450 pips from the current price. ”
With a more detailed trading plan, you don’t need to think long to decide to open a buy position of 1 lot and put stop loss and target profit according to the trading plan, where 1 lot is using a position sizing calculator
Preparation Before Trading.
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While we have not made a transaction, there is still enough time to prepare.
Here are some preparations when the transaction has not been made.
Trading Knowledge and Skills.
There are many analytical methods and trading strategies that can be learned.
Just select the method that you understand the most and comfortable to practice. Using too many strategies will also be confusing.
Use as much as possible and test in trading simulation before using real money then evaluate the results. Professional traders prepare their trading well to avoid unnecessary losses.
Beginner traders are usually nervous during the first transaction period. When opening a position can make the heart pound, because of fear of loss.
As a result, the profit is only slightly less than the commission, in a hurry to close the position.
But when the loss floating, let and hope patiently waiting for the price to rise again to reached profit. This can be overcome by calming the mind first before starting trading.
In order to be able to concentrate to the fullest, find a trading place that is comfortable because the disorder can reach money from your pocket.
Use the money that affords to lose.
Use the money that does not interfere with your daily life as trading capital.
Even if the money runs out, you can still live a normal life and avoid using loan money.
Next, determine the amount/portion of the risk in 1 transaction based on trading style and risk tolerance.
As an illustration, traders usually set a loss risk limit of 1-5% per day.
This means that if one transaction has a maximum loss of 5%, then it will stop trading and calm down instantly for trading again the next day when market conditions are in accordance with the analysis.
Most traders have the purpose of making forex transactions to get profit.
But in practice, not all traders transact for profit. So many traders actually want to test adrenaline, try their luck, even consider this the same as online games!
If you want to achieve “Trading for Living”, you need to set a target in trading with reasonable targets, for example, you want to withdraw amount profit in a certain period of time.
Also, determine the ratio of fair risk-reward in the sense that the potential profit must be greater than the potential loss.
After you determine your risk-reward ratio, keep discipline that you will only open a position when the ratio of risk-reward is determined.
Preparation Towards Trading Starts.
About 1 hour before the market starts, you need to prepare yourself by “updating” insights with actual political economy news that can affect trading.
What is the global market condition, what economic news will be announced, the movement of indices, and so on?
Adjust your strategy to current market conditions.
If will announce important news such as the Fed’s policy in raising interest rates, you should avoid having a position and wait until the results of the news are clear.
Main Trading Plan.
Basically when trading a trader simply runs what he has planned with discipline. Here are some of the core trading plans.
At prices and what conditions the trader decides to make an open position.
What currency pair will be targeted based on the current global market conditions, will buy at what price and where is the direction trend for buy or sell?
If market conditions and prices do not match the initial plan of trading, then do not force yourself to open positions.
Isn’t it better to lose the opportunity than to lose money?
There are so many opportunities that await in the form of various currency pairs even forex traders are given the freedom to take short positions.
But if you lose money, it means you have to spend more to be able to get trading opportunities.
This is related to the risk-reward ratio. Closing the position there are 2 possibilities between profit or loss.
Determine a reasonable profit target and can be achieved consistently.
But if it turns out to be a loss, don’t hesitate to cut loss according to the trading plan.
Take profit position and stop-loss must be determined before the transaction is done so that it can be considered objectively without emotional impulses.
Don’t forget to set risk limits according to your risk tolerance.
How to create a trading plan
A trading plan is a framework for the entire trading process that you do. How to create a trading plan can refer to the tips below.
Choose an analytical approach.
If you use a support and resistance approach, then it’s best to stick in that way and not change with other approaches. This will make it easier for you to evaluate the performance of your analysis.
You have studied a lot of analytical approaches with indicators and harmonic patterns. It’s best to choose the one that makes you most comfortable with the strategy.
Determine how to open position
Once you have chosen an analytical approach, determine how you will open a position. Whether with breakouts or with pending orders, etc. When you have determined how to open a position, do it with discipline.
Focus and limit the market
You don’t have to trade aggressively, limit your desires by making a planned order within reasonable limits, don’t overtrade. To help the focus, you can use tricks only by using certain timeframes as the main reference for your trading.
Set the time limit for holding the position.
You may be more comfortable holding positions for no more than 4 hours on an order, or even holding positions for up to several days.
Set a time limit for holding your position, regardless of the result. The price movement in one hour can actually be profitable. This depends on the trading style you choose, where swing traders can hold positions for several days, while position traders can hold positions for several months.
Determine risk tolerance
Risk is part of trading, especially forex is known as a high-risk high gain business. You must limit the maximum risk tolerance in one trading plan.
With a risk tolerance of 2% for example, with a capital of $ 1000, meaning that in one trading plan you limit the risk to a maximum of $ 20 in one plan.
Do it with discipline and don’t break it. To calculate the value per pips you can use the pip calculator indicator for easiness.
Determine how You Will Handle Adversity or success.
In trading, you may encounter difficulties, for example, consecutive losses. You have to plan how you will handle your emotions in this unhappy situation. Maybe you need to go off the charts for a cup of coffee.
But when success comes to you, don’t get drunk in euphoria. Indeed Confidence is good, but not for overconfidence.
Routinely track trading performance.
You can take advantage of the weekend to evaluate the performance of your trading plan in a week. Analyze how your work is progressing, portfolio progress, or decreasing.
Analysis of the causes of decreased performance, whether market conditions are difficult, or lack of discipline in maintaining a trading plan. This will help to trace errors and fix them.
Trade your Trading Plan Properly.
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The best trading plan is a trading plan that is done properly and disciplined. It is true that we cannot specifically predict the conditions that will occur in the market.
So to further facilitate and hone our trading skills, make a trading journal that contains a detailed evaluation of trading results. Also, attach a trading plan and clear trading results and learn what is good and things that can be improved.
So when the conditions are the same, we don’t need to repeat similar losses or mistake and trading expertise becomes more developed. Patients and disciplined will achieve consistent profits and survive from year to year with various business cycles that occur.
Are you ready to start trading?