Forex Trading Plan- Why You Need One

Forex Trading Plan- Why You Need One

Forex Trading Plan- Why You Need One

A trading plan is an essential component to your success as a trader, but why? Well without rules you are not going to be-able to operate in a disciplined manner, and you will make mistakes that will cost you money.

Look at the rest of the world, there are rules and laws that we must abide by. Imagine what society would be like if there were no laws? It would be anarchy! The same thing applies to trading, if you don't have rules that must be kept, then there is nothing to stop you from making errors.

The problem is most people don't like rules, and they like even less that thought of creating rules that they must follow themselves. This leads traders to operate in the market without boundaries and they end up causing themselves terrible harm.

To overcome this we must create a written trading plan and a set of rules to abide by. These rules will keep us out of trouble and stop us making mistakes like risking too much. HOWEVER writing out a set of rules is useless unless they are followed.

To follow rules that we create for ourselves requires self discipline, and this is another area people dislike. We spend our lives being told what to do, in school and in our place of work. Most people jump at the chance of freedom. Freedom seems like a wonderful thing, freedom to go where we want, when we want, if we want. Also freedom to express ourselves how we want. Well the forex markets are the ultimate place for self expression. We can basically do what we want, until ofcourse our money runs out. People yearn for the freedom the market gives us, the ability to work from home and not be tied to anyone else's schedule

This freedom causes a lot of the problems that aspiring traders face. So to overcome this we should create a trading plan. The trading plan should be a complete document on how you intend to take on the forex markets. You should write down all your long and short term goals. Create a list of the currencies you will trade.

Then there is the money management rules which are by far the most important part. You need rules on how much you will risk, how you will manage positions, and when you will take profit. You should also know how much you are willing to lose during a week or month, so for example you could decide that you will stop for two weeks if you lose more than 10% in a month. This will stop the drawdown for a time atleast and allow you to re-focus your mind.

A trading plan must be followed otherwise it is a waste of paper. It should also be revised on a regular basis, this means looking at you trading records and seeing what you could do better.

Trading is all about putting the pieces of the jigsaw together and building a trading plan is one of these pieces.

Having a trading plan puts you ahead of the traders who don't have one, you have in a sense created an edge over them.

To find out exactly how to build a trading plan visit my site.

Safe trading.

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