The Need of a Forex Trading Plan
Having a forex trading plan is one of the most important factors towards becoming a successful forex trader. Yet, there are so many traders who fail to create a forex trading plan, or usually put it in the back burner for something that they will eventually to at some point of time in near future. However, that time to create a trading plan never arrives and they continue trading without a properly defined trading strategy or trading plan.
Procrastinating on the idea of creating a forex trading plan is a way of inviting random trading and this type of trading usually leads towards blowing out trading accounts. Success in the forex markets is attained by being a disciple trader. Most traders rarely have the self-disciple to make sure that they are trading objectively and not emotionally. By having a forex trading plan, you can have more of a mechanical approach to forex trading and not get misguided by your emotions while trading. Keeping a trading plan acts like a GPS device that ensures you stay on the path of a disciplined trader rather than being misled into the wrong path of emotional trading.
To be successful in forex trading you need to be accountable for you trading. A pre-defined trading plan assist in making sure you are held accountable for all the trades you place. There are moments in trading when you face a streak of losing trades, at such times you are likely to become emotional and try to regain all the money back all at once by taking on large trades. Trying to recover all losses in one go usually does more harm to your account than good. This is why a trading plan is need to ensure that all your trades are made for what is best for your account and not for what makes you feel better because you are emotionally hyped up due to your losses. A trading plan serves as a physical reminder that you need to act in the best interest of your trading account and not yourself.
A well-defined trading plan contains a defined entry strategy with a proper risk: reward ratio in mind. You should already have an exit strategy for your trade even before the trade is made. In case there is an unforeseen change in the market environment, the trade should be adjusted accordingly in order to manage risk. Once a trade has ended, the trade should be thoroughly analysed to see what went right and what went wrong during the trade, to make sure the same mistakes are not repeated in the next trade. A trading plan is most effective if it is read on a regular basis, this allows you to assess how you have developed as a trader and keeps you on the right path of what is needed to be a disciplined trader. A forex trading plan acts like your personal guide to the market, it is there to steer you in the right direction and prevent you from making emotional trading mistakes.