How to Make a Forex Trade Plan.
What is a Trade Plan?
A trade plan is a very crucial part of any traders routine when entering the forex markets.
The trade plan must always be written before entering any trades and will include the following key information:
1. Entry price.
2. Stop loss price.
3. Take profit levels.
4. What you will do when price hits each take profit level.
5. How you will amend the stop loss (trailing technique).
The trade plan basically forms the backbone of any traders trade management technique. It outlines how the trader will manage the trade, where to enter, place stop loss and at what points the trade can be amended. It can be written as a simple document on word or as an annotated chart. As long as all of the key information is clearly noted.
It takes a matter of minutes to produce a trade plan but is the most valuable of tools.
Why is the Trade Plan important?
If a trader does not write a trade plan, it can cause many problems and produce an inconsistent trade management style.
Making trade decisions as you go a long in a trade is very dangerous.
The Forex has no set rules for traders to follow, it has the ability to do whatever it likes, whenever it wants. So to enter trades with no trade plan means traders have no rules to follow. This tends to result in an emotional roller coaster for these traders every time they enter a trade.
The reason why we need to write down how we intend to manage a trade before actually entering any trade is because we are able to make much better decisions when our mind is not clouded by factors such as money or fear of making the wrong choices, etc…..
It’s just not a healthy way to trade.
Following the Trade Plan.
Once a trade plan is written and a trade is triggered, the trade plan must be followed to the letter, no amendments can be made. This is where a traders discipline is tested.
This is what gives traders the control back and enables the emotion of trades to be subdued and gives traders a far better chance of trading consistently.
The most common problem traders face is over managing trades and messing around with trades when they should just leave them alone.
This article is one example of the many ways to instill discipline and give traders their edge in the Forex markets. It’s very easy to get into the routine of over thinking the Forex and getting completely muddled up. A trading plan is a simple and highly effective technique to managing trades.