Why You Need a Trading Plan

You can learn a lot about the Forex currency market. You can have a great system for trading but without a good trading plan and the discipline to stick to it, you will NEVER be profitable.

Your trading plan will continually move you in the correct direction to make money trading the currency market. If you can make a living without a plan, you must be a market genius.

Let us give you some good reasons why you should have a trading plan.

Why Do You Need a Trading Plan?

First of all, it moves you down the right path.
It is imperative that you develop consistency in your trading. We all have our daily routines, which help us make each day a success. As a trader, a routine is vital to your success. Not only does a routine improve your chances for success, but you are able to measure your success and change something in your routine if you are not getting your desired results. Make a plan, and stay with it. If you don’t, it will be hard to consistently make money and you’ll never know if your routine is worth keeping. Read your plan daily, follow it and you will stay on track with your goals.

Secondly, successful trading is not just a hobby.
I say this because successful trading requires that you have a business mindset. All successful businesses have a plan. By sticking to a plan a business will be successful. If it stops following the plan, it will become weak in its industry and fall by the wayside. Don’t think that your plan is set in stone and can’t be altered. Many times it may be necessary to update it, but the important issue is that you always have a plan.

The difference between the winning traders and losing traders is a plan. If you have a good plan (developed over time) and you stick to it, you will become successful!

Don’t get tied down trying to make some complex business plan. Make a simple plan and add to it as you learn. Whether it is simple or complex, I can’t stress to you enough that you FOLLOW YOUR PLAN.

Basics for Your Plan

1. What Are My Goals

Take some time and think about what you want to accomplish as a trader.

Do you plan on making currency trading your main source of income?
Make a realistic goal on how much return you would expect with your current trading skill and experience.
Remember, all your goals don’t have to deal directly with making money. They can be oriented around learning specific details in the forex market, or they can even be personal.
Ask yourself what you would like to accomplish through this experience, and remember why you are doing it if times get rough. Hopefully you will have worthy enough goals that they will constantly motivate you.
A goal to make a lot of money is not really a goal. It will be the end result of accomplishing the goals you have set.
2. Trading Routine

As discussed previously, a trading routine is an important part of your trading plan. By having one, you will already know:

At what times you analyze the market and plan your trades
The best time for you to place trades and watch the market.
At what specific times throughout the day that you will check the market.
Example: I will analyze the market each evening when I get home from work and just before I go to bed. I will watch the market for an hour in the morning before I go to work. I will check the market when each new 4 hour bar is formed when I am awake.

3. Trading System

The trading system is the foundation of your trading plan. At least a month before you start trading real money, test your system out using your Pre-Launch Trading and Demo Trading.
Some of the most essential things you should include in your system are:

• The maximum percentage you will risk on each trade.
• How many lots you will trade.
• Which time frames you will look at.
• The entry and exit signals you will use.

Example: I trade the US market. I trade in the direction of the trend on the 4 hour chart. I trade when I get at least two confirmation signals (on the time frame that is easiest to read at the time I am trading). I will always start each trade with only one lot. I will add on to the trade as new signals present themselves. I will exit all positions when my manual trailing stop is hit or when two price bars close below the purple line.

4. What is My State Of Mind?

Being calm and relaxed is an important part of trading. By following your routine you can be in a better state of mind than if you run in and look at the market to try and get a few pips while checking the price randomly through out the day. Your routine will help keep your emotions in check.

Example:
• I will look for signals-not guess which way the market is going.
• I will only trade in the direction of the trend.
• When I lose on a trade I will see what I can learn and move onto the next trade.
• I will not try and get even with the market.
• I will not be hard on myself for losing on a trade.
• I will use each trade as a learning experience.

5. Your Trading Journal

Make sure you log the details of each trade and record the reasons for the trade in your Trade Tracker sheet. This will be a constant progress report and allow you to evaluate yourself from time to time. You will learn from your mistakes, and realize how much of a better trader you’ve become. This will give you the confidence to be even more successful later on. It will better help you keep track of your goals and remind you what you need to do to accomplish them. It doesn’t take long to write down your trades, and will be well worth your time.

Summary
Your trading plan will be just like a flight plan; it will keep you on target toward your goals.
Review your trading plan every time you trade and stick to the plan.
You may have all the knowledge out there and be able to talk the talk, but if you do not put that knowledge into a trading plan it will be much harder to apply it in your trades and be successful.
Keep in mind when you start to trade with real money you are actually creating a business, and any business needs a plan to succeed. If you do not want to start a business then stick to Pre-Launch and Demo trading and treat it as a game until you have the confidence to do so.

Below you will find an example of a trading plan.
You should make up your own trading plan from the suggested outline above.
You will be amazed that by following the trading plan you will stay in trades longer and reduce the amount of poor trades you make.



TRADING PLAN
(Example)


I never trade when I am tired, upset or rushed. I check the markets when I get home from work.I set up signals just before I go to bed.When an alert sounds I check the market and place my trades based on entry signals.I never anticipate what the market will do I trade only with signals.I always trade with a stop loss.

I check the market when I get out of bed.

I always trade in the direction of the trend on the 4-hour chart.

I enter the market on the time frame that is easiest to read.

I always use signals to enter and exit a trade.

I always make my own decisions to enter/exit a trade.

I always start a trade with one lot.

I only add to a trade when there are signals.

I never trade with more than 10% of my trading account.

I record my trades in my trading journal.

I accept losses and move on to the next trade.
(Losing is part of trading)

I take responsibility for my successes and failures in the market.
(I do not blame others)

I practice trade daily ___ weekly ___ for 15 minutes.

I want what the market is willing to give.
(No greed or fear)