Developing a Forex Trading Plan

Have you asked yourself why you are trading forex? Why not invest in stocks? Why not in bonds, or mutual funds? What is the opportunity cost of not trading forex?

Can you emotionally and financially handle potentially losing all of your risk capital?

What are your goals for trading forex? Are those goals realistic? How will you achieve those goals?

Who will help you attain your goals, and how much risk capital will you use?

There are many other questions you can ask yourself, but do you know what? Very few who enter into the world of trading ever ask these questions. The questions I posed above are just a few of the essentials. Just as with any other venture, you must know what you are looking for. Once you’ve defined what that is, you have to determine how best to achieve it.

Trading forex can be a most rewarding and exciting experience for those who are prepared. For the unprepared, it can be hell, becoming increasingly painful as you lose more and more money; and the unprepared will never really know why!

Trading can be exasperating. You can be in a trade that would have been profitable had you held on for another 5 minutes. You can be the last one into a “sure thing” trade, only to see it fall like a rock.

A carefully considered trading plan may be no more than a couple of pages long, probably less, but it will be your most important road map to success.

A well thought-out plan will reveal how much you are willing to lose on a trade. It will tell you when to enter a trade, when to exit a trade, and show you how to protect your profits.

It’s easy to get into trading forex. Actually, maybe it’s too easy. If you have the money, almost any brokerage firm will open an account for you. However, few brokers will sit down with you to help you develop a trading plan. Even if they would, it may not be a good idea. Only you can make the decisions and have the knowledge to develop the plan that is right for you.

Here are some things you might want to think about:

1. Are you psychologically, emotionally, and financially suited for trading in the forex market?

2. Have you truly set forth your goals and objectives, realizing that objectives are achievement steps towards your goal?

3. What are your limitations—physically, financially, and tradable hours?

4. Knowing that you must keep a trading journal, what items will you keep track of?

5. Which currency pairs will you trade?

6. How will you do your analysis?

7. What, if any, trading system, method, or setups will you use?

8. Do you have solid money, trade, and personal management rules?

9. What, if any, trading strategies will you use, and have you developed the tactics to carry out those strategies?

10. Do you know every kind of order available to you, and how they will affect the strategy you plan on using?

11. How will you find a good broker, and what exactly do you expect of that broker?

12. Will you use a broker who is registered with the NFA and the CFTC?

Now you can work on developing that trading plan!

Forex at the Market