3 most important trading plan improvements
Dear Traders,
A Forex trading plan is not really different from any other plan you can imagine.
It's basically a to-do list for trading Forex online.
The main idea is to develop:
- a set of rules you can implement and adhere to, then
- your experience of applying them risk and cost free on a demo account, until
- feeling confident to start trading live.
But we have already covered how to make a trading plan - now we need to improve it.
Afterall, if you are just randomly trading what you like without a real underlying system, method or planning:
...your long term odds of success are slim.
Trading a winning methodology creates your trading edge and vice versa.
And maintaining that winning methodology requires constant adaption, as the market changes over time.
So, let's focus on improving your trading plan.
Your Forex trading system
First we need to know if your system actually needs improvement.
Begin by analysing your trade entries and trading time frame.
Is the time frame too low or high for you?
Remember that even strategies with lower than a 60% success ratio, can make you money.
How?
Well, let's say you:
- lost your first ten trades in a row and are now down 10%
- win your next trade by 4%
- win the next two - first 2%, then 4%.
This means you have made a total of 12% and are up 2% for that month.
You have now won 40% of your trades and are 2% up for a single month:
...which is what most banks give you after two years of savings.
The problem is that the majority of traders:
- don't last through those first five losses
- abandon the trading system, to look for the next best thing in the market
- repeat this mistake to the point where many quit trading entirely.
So what can you do about this negative scenario?
Here's five things you can do that may improve your system right now.
- Be patient.
- Lower your risk by 0.5% to 1%.
- Try to let your winners run.
- Use a profit stop i.e. stop loss or take profit.
- Scale in and out.
Money management
When you have finished with your trading system, start focusing on your money management.
You need to be clear on whether or not your system allows you to trade multiple pairs and what those pairs are.
Improving your money management includes creating or revisiting your rule on what the optimal per-trade exposure is, for your trading system.
To calculate it, always take a potential double-exposure to a currency pair.
No matter if you are trading to make / lose 1,000 pips based on fundamentals or five pips based on technicals:
...as soon as you take a position, price can go up or down.
Even if your fundamental analysis is right, it can move against you two pips or several hundred.
So what should you do?
Keep your position sizes small, so you don't lose much money or for very long.
Control your trading emotions
Impulsive and emotional decisions are created in your mind.
Problems usually occur when a trader feels pressured to make a trading decision.
Staying calm and patient during trading, will help optimise your trading results.
Try to make a list that includes checking:
- the optimal level of your emotional spiral
- whether you are trading or gambling
- if you are optimistic or euphoric
- if your emotions are above the psychological support
- if you are calm or nervous
- whether or not you are committed to staying disciplined
Explore the latest trading innovations too, as there's numerous tools designed to optimise your trading experience and make trading less stressful.
Get a reality check
Don't try to be a full time trader immediately.
Hold on to your full time job and trade part time first.
You can still trade like a professional trader, but you don't need to quit your job.
A full time trader requires considerable capital, which generally has to be built up over time.
Being a full time trader is something you can aspire towards reaching and while it's not going to happen overnight:
...I believe it will happen if you are patient and focused on learning trading correctly.
Take heart in knowing that I'm living proof of this fact.
Cheers and safe trading,
Nenad
