Writing A Trading Plan
Writing A Trading Plan, All professional traders have a trading plan. Trading futures is a zero sum game and those with a plan (and the discipline to apply it) will succeed over those that have no plan. A plan details the particular market anomaly that you intend to exploit – your edge. Human emotion creates anomalies – essentially, the fear and the greed of those that have no trading plan.
Creating a trading plan and rigidly applying that plan allows the professional trader to eliminate emotional responses from his trading.
Let’s look at what your written trading plan should cover:
Trading concept – What anomaly is your trading strategy intending to exploit?
Timeframe – The shorter the timeframe the more trades that can be made. However short term trading leads to lower reward:risk ratio’s and higher commission costs.
Instrument – There are many different ways to trade essentially the same idea – options, futures, exchange traded funds etc. Which offers the most reward for your trading concept?
Entry – How will you open your trade?
Exit – How will you close your trade – A stop loss should be placed at a point where the trading concept become invalid, this could be a specific price or a certain length of time. A profit exit must also be established – again either a certain target price or a timed exit.
Money Management – How much capital is required to trade the strategy and how much should be risked on each trade to maximise returns whilst minimising the risk of blowing the account?
End of Day Routine – At the end of each day every trade should be compared to the trading plan and any variances should be addressed. Remember the plan is their for a reason and you must trade it exactly. If a change is required then it should be properly tested before being added to the plan. No decisions should be made whilst a trade is live.
Brokers – Which broker will you use and how will you trade? Automating a trading plan through the broker’s API will help to eliminate any emotional responses.
Your plan will require constant revision as the market dynamics change. If you have noticed a market anomaly then it’s very like that many of your competitors have as well.
“If you don’t know where you are going, any road will take you there.” Lewis Carroll
Tim Wreford runs Online Futures Trading, a website that provides information and resources for traders. Tim also provides a free day trading system, the results of which are updated daily on the site.
Generally, there are two sorts of forex trading plans that are most common among the currency traders; technical analysis and fundamental analysis. Every individual trader can customize these plans or strategies according to their needs and interests. These plans can be regarded as the guiding tools for any trader in making different decisions and actions in the market.
Technical analysis gives you an overview of the past market performances and track records which enable you to pace your decisions more accurately and conveniently. These tools employ mathematical and statistical operations in order to determine a certain activity in past. Indicators and charts help the traders to make sound and reliable decisions based on the mathematical calculations. Since, it is a scientific technique and formula implementation therefore time plays a crucial role in its operation. These time intervals are broken into hours, days and even in weeks. These calculations are more geared towards the time sensitive trading.
Technical analysis gets more importance and significance when it comes to day trading because a lot of small level traders depend upon these time sensitive calculations and estimations. The charts and indicators offer quick idea and guess about the market situation and expert traders find it extremely easy and convenient. Automation can also be inducted in to it by the use of advanced software and technical tools. These systems are flexible and any new change can be incorporated very easily. Programming techniques can be utilized in order to customize the software to enter or exit the trade.
On the other hand, fundamental analysis is different from the technical analysis. Fundamental analysis basics, ingredients and components are different than those of technical analysis. Fundamental analysis includes political and economic affairs and situations, chief economic policy alterations and unexpected calamities. Technical analysis concentrates more on the mathematical and statistical formulas and calculations whereas fundamental analysis is more of a psychological analysis and depends upon the global financial aspects to determine the market trends.
Undoubtedly, it can be said that fundamental analysis greatly depends upon the foresight and vision of the trader and is not something that can be predicted through software or a program. It gives an overview of the overall market functioning and surrounding global fiscal aspects. This sort of analysis is often carried out by the banks, corporations and large financial institutions. Finally, a trader can chose a trading plan as per his needs and suitability. He has to consider his strategies, risk factors and required tools.
Najam Baloch is a professional article writer who has been offering his content writing services to different clients around the world for last couple of years or so. Though he is an Engineer by profession, he loves writing on diverse topics and subjects, which help him enhance his vision and knowledge to come up with better approach for his future writings. Not only is writing his passion, but he has been rather successful in turning it into long-term secondary income source.
Having the right Forex trading plan is a must if you desire to succeed at trading. To do this, you need to spend time researching and testing various systems.
Having a written Forex trading plan is your first step. It has been shown that people who have written plans achieve far more than those who approach tasks haphazardly. This is no different than when you start trading. You’ll find the ones making lots of money in this market started out with a specific plan to succeed.
Your plan must include a specific strategy that determines which way currency pair prices will move. Be sure to make notes on your trades after you’ve completed them. See if you are deviating from your plan or if there are areas of improvements that could be added.
Emotions will be the worst culprit of causing you to stray from your strategy. What goes through your mind after losing money? Will you get mad and try to make it back fast? Will you stop trading and feel like giving up? Both of these responses can give rise to trading outside of your plan. Be very mindful of this.
Once you have a method figured out, don’t use it right away. Practice it in a demo account first. Do this until you feel you’ve got it down. Then, move onto your account with real money.
Your plan should include a way to increase your profits. The easiest way to do this is to increase your lot sizes. This way, you are making the same trades but risking more to make more.
Another way you can make more money on each trade is to use trailing stops as part of your strategy. Currency pairs trend very well so you might catch a long trend using a trailing stop loss order.
Automated trading software is the most important part of any plan. You can use these software systems to control your plan. It is the best tool to keep you on track.
So, are you ready to get serious about trading? Make yourself a Forex trading plan today!
You probably have seen a million forex trading plans which involve using countless indicators like Stochastics, MACD, Moving averages, etc. Well… I thought I would do something a bit different. I would talk about a forex trading plan that got rid of all your indicators, through the use of price action.
This may sound scary to you, especially if you are an “indicator junkie”. But once you begin to think outside the box a little, I have a feeling you’ll get back into your comfort zone.
First off, do the obvious: Remove all your indicators. When I say all of them, I mean ALL OF THEM. There shouldn’t be one indicator left on your chart, and you should be looking at a plain bar or candlestick chart.
The next thing you do is simply watch the market move. This could be on a small time frame like a 5 minute chart or a longer time frame like a daily chart.
One thing should become clear as you are watching the price move: There are inherent areas where a price will suddenly stop and revert back. These are called support and resistance areas. I’ll put it as bluntly as I can. There are no indicators that can tell you where these support and resistance areas are.
You have to be able to see them for yourself. It’s all based on price action patterns. I’ll give you a clue. The more volatile a price move is, the easier it is to spot the true, natural support and resistance areas.
John Templeton has been a successful forex trader after learning how to trade price action [http://www.priceactiontrade.com/]. Once he understood that all he needed to trade forex was on a plain chart with no indicators, his profits soared. Learn how to trade forex [http://www.tradinginthebuff.com].