Creating a Good Forex Trading Plan
There are a few things you need to know to build a working forex trading plan. You may be using a combination of very complex forex trading strategies, or you can be using a very simple system. In any case, all good trading plans need these ingredients.
Price Movement Predictions
First of all, you need to know where you expect a price will move in the future. This seems obvious, but many people don’t really have a solid prediction in mind before they start trading.
You can do this a number of ways. You can use a variety of forex technical indicators like moving averages, MACD, trend spotting and Fibonacci Retracement. Whatever analysis you use, make sure you have a good reason for your predictions.
Know When You Will Enter
Don’t do this by intuition, unless you are really good at it. Only a few are good at picking entrance points by feeling. In your plan, have a specific price point in which to decide to go in. This will take some analysis as well as watching how the market behaves for a while before you enter in.
Make sure you have more than just technical criteria for entrance as well. Consider any major news or economic indicators that are released or scheduled to be released. Also, consider what’s happening in the other market as well, like the stock market and gold market for example.
Exit Point
You must know how you will exit your trading position. If the price moves in your favor, where do you put in the trailing stop losses to make sure you make a profit without getting you out too soon?
Also, this is very important, think about where you will cut your losses. Of course you can have your forex broker do that for your through a margin call, but you don’t want that to happen. In any case, if you are working with that small of a margin account, you might want to reconsider bulking it up before you start trading. Make sure you have a plan to cut losses and stick with that decision. Don’t let your overoptimism cause you to lose all your money.
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