FOREX TRADING
It can take months, sometimes years of hard earned cash disappearing,
before a trader steels himself and admits either defeat or that he must
change his trading ways. The most successful traders on this earth are
both tenacious and lucky, but also have a strategy that painful lessons
have hardened into the brightest of diamonds. In our Trading Plan
series we will cover how to develop and create a trading plan that
alleviates 90% of the mistakes others make. The key is do you have the
discipline?
Development
We have seen in both our Psychology of Trading and Trader Types
how fatal discretionary trading can be. We have also seen how trading
becomes a battle of emotions if no strategy or plan is present as laid
out in our Trader Mistakes series.
Many traders gradually through analysis and sleepless nights start to
formulate what works what doesn't and their Trading Plan forms from
necessity rather than brilliance. A Trading Plan is needed to negate
emotional decisions, we develop a road map of instructions that guide us
in stressful situations and that we can fallback on in stormy
conditions. Developing a trading plan is not hard, developing a plan
that encompasses and marries your own goals and personality is and that
is where we will concentrate first.
From our 5 Basic lessons we outlined 5 steps which we cover here in more detail.
1) Know yourself and your personality as this will dictate your:
2) Trading Style and
Methodology, whether you believe in trading off the Fundamentals or
Technical Analysis, one will lead to whether you are more of a position
trader or scalper. From that decision you can ascertain:
3) Trading Length of time: Day, hour, 5 minutes etc. Once the trading length of time is established the next stage of :
4) Developing Profit,
Stop-losses, Targets, Risk Management and Goals can be worked on, as can
frequency of trades and number of trades can be decided.
5) With all of the above
you then have a basis for when to trade e.g a scalper will have no
interest in trading the twilight hours where the volumes are low and at
the mercy of slow directionless price movement. A scalper wants quick
movement to match his quick temperament and even quicker trading
methodology.
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With those 5 points developing a trading plan
allows a trader to understand what system or trading style is best
suited. Once you have a full understanding of yourself and how you
want to trade you are on a stronger footing than 1/2 the traders out
there who buy and sell randomly or have a system that's brilliant but just doesn't fit their personality.
Many trading plans that we
have seen contain simple goals with little thought such as, increase my
annual earnings by 10%, trade simple moving average, my stop is 100
points, I will trade only in 6 pairs, I only ever have 4 positions open
etc. In essence this is not only naive it is like writing a shopping
list. A
trading plan has to be blueprint of you because the way you trade is
equivalent to finding your ideal partner. It is essential to finding a
system, a rule set that fundamentally you will believe in and understand
in stormy markets.
The key to winning in this
game is all about you and your choices. It's all about greed and fear.
They’ll be swing traders screaming that you can't make money scalping a
5min chart, there be scalpers screaming that position traders need a
trending market. Those who make money consistently don’t give a s..t
what any one thinks, because they have learnt that 1) how they trade
matches their personality and the system they follow caters to both,
that's what made them profitable. Starting out paying attention to what
kind of trading personality you have allows you to then to cultivate the
way you trade. Knowing your emotional weakness also then eliminates a
great proportion of error. You are starting to formulate an idea a plan a
strategy and more importantly on the steps to an edge. Opportunities to
make money in the markets present themselves everyday but if you have
no plan, no discipline, no solid hours of faithful learning your
strategy, you will fail.
Using the 5 point plan In Part 2 we look at how to develop and match your trading plan with examples and how to develop
5 TRADING PLAN POINTS
1) Know yourself and your personality as this will dictate your:
2)
Trading Style and Methodology, whether you believe in trading off the
Fundamentals or Technical Analysis, one will lead to whether you are
more of a position trader or scalper. From that decision you can
ascertain:
3) Trading Length of time: Day, hour, 5 minutes etc. Once the trading length of time is established the next stage of :
4)
Developing Profit, Stop-losses, Targets, Risk Management and Goals can
be worked on, as can frequency of trades and number of trades can be
decided.
5) With
all of the above you then have a basis for when to trade e.g a scalper
will have no interest in trading the twilight hours where the volumes
are low and at the mercy of slow directionless price movement. A
scalper wants quick movement to match his quick temperament and even
quicker trading methodology.