One must create a trading plan to be able to monitor his/her trading activity. It is of great importance because it helps you decide when to trade, what to trade, how much you should trade considering your risk appetite or the trading platform to use which is preferably MetaTrader 4. A trading plan shouldn’t be the same as others. It should be based on your lifestyle, your personal plans, and goals. It is okay to use other trading plans but as an outline online. Remember that someone else’s trading attitude is different from you and that the risk tolerance of one trader is different from another.
What should your trading plan have?
There are a few things that your trading plan should contain. Your trading plan should cover the following;
- Your motivation to trade
- The time you are willing to commit to trading
- The trading goals
- The risk appetite
- The trading capital
- The risk management rules
- The markets you want to trade with
- The strategy to use when trading
Your trading plan is different from your trading strategy. A trading strategy is how you must enter and exit a trade.
Why is it important to have a trading plan?
A trading plan helps a trader in so many ways. A good trading plan ensures that you can avoid emotional decisions during tough situations. Here are other benefits of creating a trading plan.
Because your trading is already preset, you will have easier trading by following the pre-set parameters that you have.
With a trading plan, you are already aware of when to take profit and exit a trade to cut losses. This keeps your emotions at bay during the decision-making process.
Better Discipline in Trading
When you stick to your trading plan, it shows that you are a disciplined trader. You will then get to know why certain trades do not work to you when it works perfectly for others.
Available Room For Improvement
If you take a record of your past trades, it will help you to learn from your past mistakes and also encourage you to improve your trading judgment.
What Is The Process of Creating a Trading Plan?
Outline your motivation – figure out what motivates you to trade. Why do you want to become a Forex trader?
Decide the time you want to spend trading – decide the amount of time that you are willing to trading. Do you have regular work? Are you willing to trade while working at your regular job?
Define your trading goals – what are your trading goals? When talking about goals, it should be realistic goals to start with.
Pick your risk-reward ratio – what is your risk appetite? Decide your risk limit before opening your trades.
Decide the amount of capital that you are willing to shed – how much capital do you have? This capital should be your extra money and not the funds intended for the purchase of your personal needs
Your knowledge of the Forex market – before you enter the market, you must research the most reputable trading platform to choose like MetaTrader 4 or the overall market knowledge.
Starting a trading journal – a trading journal will help oversee your past trading activity. How you lost a trade or won one, you can definitely gain valuable lessons from it.