Determining the Trading Plan and Strategy

Forming a Trading Plan

"Just because someone else has a trading method that works well and is successful because of it, doesn't mean that the same exact method can give you the same results."

Most of us are probably novice traders. So, it is very common if one of us imitates other traders or follows the trading ways of others who are considered more senior than you.

Trading Plan and  Strategy

It's not wrong, but never follow other people's opinions absolutely. Every trader can have a different view of the market. Likewise, the way of thinking, risk tolerance, and targets are different.

Just because someone has a trading method that they can run well and successfully doesn't necessarily mean it's suitable for you. In other words, you may not be able to carry out this trading method well and successfully.

Have your own trading plan, which suits your character as a trader, and always update it in line with your experience studying the market.

said the wise man.

If you fail to plan, then you have already planned to fail. "

Building a trading plan and running it well is closely related to discipline. But discipline alone is not enough. You must have super-strict discipline.

Having super-strict discipline is the most important characteristic of a successful trader. You need super-tight discipline to run the trading plan you built earlier.

The trading plan itself is a guide to what you should do, why, when, and how you will do it. The trading plan covers your personality as a trader, personal goals, risk management, and the trading system that you will apply.

If you run a trading plan with super-strict discipline, then you will be able to minimize the mistakes that occur in trading, which by itself will minimize risk.

Your emotions will usually overwhelm you when your money is in danger. Often, people will make irrational decisions at times like that. A good trader should not make such irrational decisions.

A good trading plan (and super-strict discipline) will keep you from making bad decisions in difficult times. With a good trading plan, every decision that comes out has been carefully calculated, so you will avoid making rash decisions in difficult situations.

All you need to do is stick to the original plan, namely the trading plan. There is a sentence in English that can easily describe it, "Stick to the plan!"

1. Why do you need a trading plan?

The Importance of Implementing a Trading Plan

It was mentioned earlier that a trading plan will protect you from making rash decisions. In addition, a trading plan will make your trading simpler than if you did not have a trading plan at all.

Have you ever used the Google Navigation facility that works like a GPS?

With Google Navigation, you will be guided if you want to travel somewhere you didn't know before. You just enter your current location and enter your destination location.

Then Google Navigation will provide the best route and directions to get to your destination. You will be given instructions on which route to take, for example, "... in one hundred meters, turn left... continue straight...." etc.

You just follow it so you can minimize the risk of getting lost.

Your trading plan works similarly to those routes and directions. It will show you where you are now and help you to achieve your goal as a trader, which is consistent profit.

Trading without a trading plan is almost as bad as traveling without knowing the direction and location of the destination. Your goal in trading is to make consistent profits, but it is nonsense if you don't know how to achieve that goal.

As a result, instead of making consistent profits, you consistently destroy your trading account. With a trading plan, you will know what to do. You'll also know right away if you're going in the wrong direction.

You will have a standard against which to measure your trading performance. You will also always know what to do if you turn out to be "the wrong way". A trading plan will also help reduce the potential for stress and emotion in trading.

You can trade without a trading plan, but your trading style will be haphazard. Buy and sell only based on instinct or unclear signals. That's not trading. It's the same with gambling.

Having a trading plan is not an absolute guarantee that you will be successful. But at the very least, by having a trading plan, you will be able to evaluate what went wrong with your trades if you fail.

In reality, failure in trading is caused by not having a trading plan or not executing a trading plan properly.

This is a fact. The majority of novice traders do not have a trading plan. Through this program, you will try to be one of the few who can actually survive in the trading world.

2. Get to know your personality.

Understanding Your Personality

The first step needed to build a trading plan is to recognize your own character. The basis of your trading plan is your own character because you are the one who will execute it. By knowing your personal character, then you will know what kind of trader you are.

This is called a trader profile. If you already know your profile as a trader, you will be able to find out what trading method suits your character.

Strategies, systems, or methods that don't match your character will actually reduce your chances of success.

3. Set goals.

Setting Goals As a Trader

Set your goals as a trader. It would be best if you also had a certain motivation that could spur enthusiasm and strengthen your commitment.

A person will not be successful as a trader if he does not have a serious commitment. It will be quickly crushed by the market. Remember that your goal in trading is, of course, to earn consistent profits.

If your goal of trading is just to have fun testing your guts, then that goal will not work together with the goal of achieving that consistent profit.

At certain times, you may enjoy stressful times when your transactions are swayed by the market. But believe me, you will find it difficult to show that happy face when your account sinks in the market.

If it's really fun testing your guts that you're looking for, feel free to do some "recreation" like bungee jumping or skydiving instead of trading.

4. Set targets.

Setting a Target When Trading

We recommend that you set your profit target with explicit and specific numbers. For example, $100 per day, $1,000 per month, 20% per month, 50% per month, and so on.

Clear targets, in turn, will help you determine the strategy you will implement. You will also be able to evaluate the progress of your trading, whether it is improving or not.

5. Capital at Risk

What is Risk Capital?

The world of trading is a harsh world. Loss after loss may just hit you. That's why you need to set a risk limit. The term is "risk capital."

Risk capital is an amount of money that even if you "lose", you will still feel fine. If in the course of trading you experience a loss, then this risk capital will be the first to leave your account.

Even if the money is lost, you will not lose your house, and your family will be fine. Thus, the amount of risk capital must be in accordance with your abilities.

Therefore, do not trade with money that would otherwise be used to pay bills or finance daily needs. Imagine if the money disappeared because your trading was losing money. You might not eat later.

6. Develop a strategy

Determine Your Trading Strategy

This strategy is related to risk management, money management, and trading systems. In the previous chapter, you learned about this trading system.

Well, in the next chapter you will learn money management and risk management so that your trading system can run in balance with the strength of your capital.

For example, in a trading strategy, the amount of funds used for each transaction is determined, as is the amount of risk for each transaction, the target to be achieved, and what trading signals are used.

Example of a forex trading plan

To be successful in forex trading, you must create and adhere to a proper forex trading plan.
Example of a forex trading plan
No task can be truly successful unless it is properly planned. It is no different in forex trading. As a result, you should understand the importance of a forex trading strategy and employ it against your competitors. Let's go over a forex plan example in greater detail, including its goal, market, research and fundamentals, strategy, rules, and more.

A Forex Trading Strategy

How to create a trading plan

A forex trading plan is a record of the trader's current market considerations. These plans include information about open trade price levels, technical and fundamental indicators, the trader's goal, and a strategy for determining the best time to close a trade. Traders can define their opinions and opportunities in the forex trading plan. The trading plan has a significant impact on post-trading analysis because traders can see where they made errors in their thinking.

Forex trading plan example

Forex Trading Plan Example
Buy EURUSD at 1.14
Price is above yesterday high and price is above EMA200 on daily chart and Industrial report yesterday was bad for US economy (Industrial Production MoM is - 11%)
When to close ?
Close at 1.152 because it is monthly high

In the following forex plan example, we defined rules for entry and exit positions based on economic and technical indicators. Aside from that, traders must enter notes in each forex plan to explain trading triggers and write thoughts that were the reason for trading actions.

How do you create a forex trading strategy?

To create a forex trading plan, you must first define your goals and expectations, as well as the approximate average trading duration and style that you want to analyze. The following step is to establish entry and exit trading rules that you will strictly adhere to in your trading plan. Always keep records and notes about your open and closed positions, as well as your thoughts that drove your actions.

Forex Strategy Goal:

This is the first point to mention when discussing the forex trading plan. That is the goal. So, what are your objectives in forex trading? Let's start with a simple and straightforward plan: you'll aim to make $200 per day or 20 ticks over a 20-day trading period.
In this case:

When should I say good-by?

Because it is the monthly high, close at 1.152.

Forex Trading Market:

After you've decided on your goal, let's take a closer look at your target market. Do you know which target markets you should concentrate on? You can concentrate on the EUR/USD spot market.

Let us now investigate the trading style. Your trading style should be day trading because all trades are mostly placed between 8:30 am and 11:00 am on weekdays.

Alternatively, on rare occasions, you may try trading at a slightly earlier time for a quick experiment. For example, because most market-related economic data and information are released around 7:30 a.m. CST, you might start trading at 7:20 a.m.
Fundamentals, research, and analysis

Once you've determined your goal and your target market, it's time to discuss the research and analysis that will be required. Forex trading is lucrative and profitable. However, the market is highly volatile and dynamic. As a result, you must have a strong understanding of market situations and what is going on in the market.

It is recommended that you create a trading plan each day before you begin trading. This trading strategy is only valid for that day.
Along with filling out the trading plan, you should do some research on the market's fundamental data. As a result, you will have a strong idea and knowledge about the market, such as global events, macrotrends, and upcoming economic data.

It is also recommended that you examine the technical data carefully. You should try to decipher the technical data from the previous seven days to see if there are any signs of technical movement.
Forex Trading Charts

Because this trading strategy focuses primarily on day trading, you should investigate candlestick charts. Candlestick charts have two chart options with different durations, such as 5 minutes and 4 hours. These two chart options serve two distinct purposes.

For example, if you want to identify major trends, the 4-hour chart is a better choice. Similarly, if you want to identify minor trends, you should look at the 5 minutes charts. You will receive accurate information about both major and minor trends in this manner.

Forex Trading Strategy

Let's now decide which strategy to pursue. Design, in conjunction with a sound trading strategy, is the key to your trading success. For example, you should consider starting with a minor trend. However, the 4-hour chart provides a more comprehensive picture of the market. However, it is still advised that you concentrate on short-term trends.

Here's an important point to remember: if you notice any consolidation or non-committal movement on the minor trends, it's best to avoid trading until the trend re-emerges.

You can use any western technical analysis technique to determine the market's direction. Moving averages or DailyFX resistance/support, for example, can give you an idea of where the market is heading. You can also use eastern technical analysis to determine the entry and exit points of a trade.

Technical analysis should be the foundation of your trading strategy. It would also be beneficial if you looked at the basic information that may emerge from time to time. For example, if the market moves against the trend, you should pay attention to the strength of the trend reaction. Here are some of the most important facts to consider.

This is the first step in determining whether your short-term trend is bullish or bearish.
You should also look for any key psychological numbers and resistance/support points. If such options are unavailable, it is preferable to analyze short-term trends and then make decisions accordingly.
If psychological numbers and support points are available, you should wait for the market to reach the numbers before looking for a reversal.

If there is a candlestick reversal pattern with the following confirmation options: Hammer, Shooting Star, Morning Star, and Bullish Engulfing, you may need to trade against the trend.

If you are trading against the short-term trend, please set your stop loss at around the 50% fib retracement level.

Forex plan rules example

Do not trade during the consolidation period.

It would be advantageous if you closed a trade whenever the MAs crossed against the trade position.

Make an effort to make at least ten tics per trade, and stop at forty tics.

Trading momentum must correspond with the short-term trend, and it will assist you in determining the best entry point.

You should exit the market before any economic data is released.

It would be beneficial if you made a trade whenever you believe things are going against you.

Do not make a trade within ten minutes of the class's conclusion.

So, in your forex trading plan, you can create your own format; you must explain your thoughts on your beliefs.
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