Remember that the majority of traders beginning out in forex trading lose money, so it is crucial to carry out everything you can to make certain that you are one of the profitable ones. Having a trading plan in place will give you a head start over many forex traders who will simply start trading with no clue of where they are going.
Having a profitable method is important of course but there are many of those out there. Most traders think that the trading system is the one thing that matters and use up all of their time searching for the flawless system that is guaranteed to make money for anyone. But no such trading system exists. Although there are a bunch of fine systems, no system will be successful without a trading plan that is tailored to the specific trader.
This means that you will need to work out your trade plan for yourself. Do not be alarmed however for the reason that it is quite straightforward. Your plan just needs to include three things:
1. Lot size
This can be measured in the number of positions that you will take on every single trade. It may vary according to the strength of your signals or it can be the same for each trade, but it ought to be clearly set out. Do not vary your lot size according to intuition, and do not vary it according to whether your earlier trade was winning or not.
When deciding on the size of your position, you should always consider your leverage and what portion of your trading bank you are willing to commit. This forms part of your RMP (risk management plan)and it is crucial to your forex trading knowledge that it is always to hand.
2. Stop losses
Your strategy ought to include a stop loss, measured in terms of pips. Again you ought to consider the risk that you are taking as a proportion of your overall funds. In most cases you should target for a risk of around 2% for each trade. However, with selected systems or if you have a very low initial pot, you might want to go higher than that to prevent your stop loss being triggered too often. Just be wary that if you do that, you have a greater danger of going bust.
3. Level of Profit
You ought to also settle on the exit position for a winning trade, i.e. how many pips you are aiming to take. If you do not close on this then you will almost certainly be tempted to hang on for s long as possible willing with all your heart that the trend will continue in your direction. Quite often you will be ambushed by an unwelcome reversal in direction and a winning trade can turn into a loser. So it is very key to decide ahead of time how much profit you will take.
Once you have your strategy, it is crucial to keep to it consistently. Resist the temptation to start a trade when the signs are not correct, or to follow your gut instinct at all, that's at least until you have got the experience of many years trading behind you. Also, reduce interruptions whilst you are trading. This will help you to get out of making foolish mistakes and keep you concentrated so that you can make the best of all of the forex trading information that you have acquired.