How to Prepare a Forex Trading Plan

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We've looked at the importance of time dimensions for your trading plan and how placing a limitation on your trades is vital, so let's take a look at the other items that will help you in preparing your trading plan for the FX market.

Entry signals

Many of us have had the same feeling when you monitor market prices. You want to jump straight in as you believe that something major is about to happen. Later you find yourself with an open position, and you do not really know what to do with it, where to close it, or what profit to look for. This is quite often the case, especially with beginner traders.

Every Forex trading plan should include a clear description of the entry signals you are planning to use in your trading strategy. Once you have noted down these signals, the main task is to adhere to these signals. Needless to say, such signals should be as descriptive as they can be. In other words, if you are using four indicators in your chart setup, you should include all four of the trading indicators in the description of your entry signal.

Exit signals

Similar to entry signals, every trader should have a clear understanding of their exit signals when it comes to learning how to prepare an FX trading plan on a professional level. Opening a trade at the right time and on the right instrument is essential. However, in some cases you may close a decent trade and lose out, just because you were not patient enough.

You could also risk closing a winning trade too early, and then miss out on the full profit you could have achieved. This usually happens due to a lack of exit signals within the trader's plan. In order to make create your plan the right way, you should have a clear overview of the profit you expect to make for each trade.

SL and TP

As we have just mentioned, exit and entry signals are vital. Such signals enable you to understand how to trade according to your trading strategy, and adhering to this will eliminate the possibility of adding your emotions to the whole trading process. An important point to cover here is that every trade should have a stop-loss (SL) and a take-profit (TP) attached to it.

When considering how to write a Forex trading plan, it's worth bearing in mind that SL levels are much more important than TP levels. As a disciplined trader, you should ensure that every trade you place has a stop-loss level attached to it. There should be no exception when it comes to setting up a stop-loss.

In addition to this, your trading plan should actually list a stop-loss level. Perhaps it could be different for various trading instruments, but it should definitely be there. Take-profit levels aren't as important, however, to make the best Forex trading plan, it is recommended to set take-profit levels before you actually commit to any trade, and then write them down as a part of your trading plan.

The Faults With Trading Plans
Most traders realise the importance of setting up a trading plan, which should preferably be solidified on a PC, a tablet, a mobile, or paper. The plan should be, at the very least, crystal clear in our minds. The trading plan itself is not a shortcut or an instant guarantee for profitable trading. In fact, it is relatively simple not to follow the rules of the plan, both by accident or on purpose. Catchy terms like 'discipline' and 'persistence' are thrown into the air as potential solutions, doing little to help traders in the heat of the moment, when a trading decision must be taken.

The main problem is that trading plans are mostly theoretical, they sound good on paper, but often cannot compete with the internal pressure to make quick, impulsive decisions in the face of price movement and market volatility. From a professional trading perspective, practical step-by-step guidance is needed to bridge the gap between the trading plan in theory and your actions and decisions in practice.

Trading With A Demo Account

Trader's also have the ability to trade risk-free with a demo trading account. This means that traders can avoid putting their capital at risk, and they can choose when they wish to move to the live markets. For instance, Admiral Markets' demo trading account enables traders to gain access to the latest real-time market data, the ability to trade with virtual currency, and access to the latest trading insights from expert traders.
 

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