Forex Trading: How to plan your trading strategy
What is a trading plan?
A trading plan is what you will be using as your decision-making tool when trading. A trading strategy is put together to help you decide what, when and how much to trade. This plan should be based on your own budget and experience. It is okay to use someone else's plan as a reference but keep in mind that experience and risk tolerance could be completely different to yours so keep it personal.
Here are a few things to keep in mind when putting together your trading strategy:
1) Mental Readiness
How do you feel about trading? Are you ready? You need to be psychologically prepared to start trading before doing so. Trading angrily or distracted can put you in a bad position from the start especially if you are inexperienced. Make sure you start trading on a nice calm day.
2) Set Your Rick Level
By setting yourself a risk level, you are basically saving yourself, from yourself. You want to set a risk level at about 2-3% so that if you lose that amount at any point in the day, you get out and stay out for the day. It is important to stick to this and take a break if things aren't going well otherwise you will fall into a hole that will be difficult to get out of by risking too much at once.
3) Set Your Own Goals
Make sure when going into a trade, you set yourself realistic profit targets and risk to reward ratios. You may not want to trade if your profit is not at least 4 times greater than the risk. It is important to set these goals prior to making any trades.
4) Study the Markets
Do you do any preparations prior the markets open? Read up on what is going on in the world, in different markets? You want to assess the market prior to its opening and to you making any trades to be able to speculate accordingly.
5) Capital to Trade With
We all know that you can win a lot of money through trading but you can also lose a lot if you are not sure what you are doing and risk too much. Especially for first time traders or junior traders, it is advised that a you set an amount of capital you are willing to trade with and stick to that regardless of how much profit or loss you make. This is to save you from continuously spending after making some profit since this may or may not lead to loss again.
6) Keep Clear Records
Lastly it is recommended to keep record of your successful trades since this something you can eventually go back to and having made note of why and how you won that trade will also be helpful. More importantly, keeping records of trades you lose is also just as important to make sure you do not repeat your mistakes.
The bottom line is, do not trade if you do not feel ready to do so with real money. Go for a demo account to begin with and once you have put together your trading strategy and feel comfortable to start trading in the real world then go for it!