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The difference between making and losing money can be as simple as trading with or without a plan.
A trading plan is an organized approach to executing a trading system that you’ve developed based on market analysis and outlook, while also taking risk management and personal psychology into consideration.
No matter how good your trading strategy is, it will fail if you do not implement it. Forex traders who maintain a disciplined approach survive year after year after year.
Because they use a disciplined approach, they can have more losing trades than winning trades and still be profitable.
How to Develop a Forex Trade Plan
Trading without a strategy is akin to sailing without a compass: if you don’t know where you’re going, you’ll get lost battling the waves.
So, aim to create a forex trading plan that includes a trading strategy that you have tested and found to be generally successful and easy to follow.
Money management and risk assessment techniques should be an important part of your trading strategy.
Choosing trades with appealing risk/reward ratios, as well as appropriately sizing your trades in relation to the amount of money in your trading account, can improve your trading performance and help you manage your risk.
Other aspects of trading that you’ll need to master include taking necessary losses quickly and recovering emotionally from trading losses.
Remember that hope and fear are a trader’s worst enemies: poor traders fear exiting a trade at a loss and hope the trade will return to profitability.
They should instead disregard such hopes and instead react to the far more rational fear of having to accept an even greater loss if they do not act.
To keep a losing trade from exceeding your predetermined pain threshold, use a stop-loss order or plan to cut your losses at the market if you’re watching it closely.
Also Read : Tips How to Develop a Forex Trade Plan
While creating a trading plan may require some time and effort, you can instead join a social trading platform and copy the transactions of another trader in your account who has a proven and profitable track record.
Here is a summary of the main advantages:
- Trading with a plan is easier than trading without one.
- Reduced stress equals improved health.
- Capability to assess your own performance, identify problems, and make necessary corrections.
- A trading plan can help to keep many psychological issues at bay.
- A trading plan that is strictly followed will reduce the number of bad trades.
- A trading strategy can help you avoid irrational behavior in the heat of the moment.
- A trading strategy allows you to control the only thing you can… yourself!
- A trading plan will help you to be more disciplined in your trading.
Discipline and a trading plan are both lacking in gamblers.
- A strategy will allow you to trade outside of your comfort zone. How many times have you let a loss run and a profit evaporate because it was the easiest thing to do? A well-executed plan will help to prevent this from happening.
- A plan is your GPS, guiding you from where you are now to where you want to go: consistent profitability.
Your trading strategy is set up in such a way that if you do take a “wrong turn,” you will be aware of it quickly and will be able to correct the problem before losses spiral out of control.
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