Thursday, June 29, 2017

The Importance of Having A Trading Plan

trading plan exampleAchieving success in any business venture can be a difficult and challenging task. I recently read in a business review journal that most small business’s fail because they are undercapitalized. Which means, in very simplistic terms, that they ran out of money before the company’s profits could cash-flow theĀ  company’s operating expenses.

Now, let’s think about this for just a moment. No one would intentionally go into business if they knew that they would fail. Seems like a reasonable statement, doesn’t it? And if most business’s that fail would have survived provided they had enough money, why then didn’t the new business owner know this in the beginning? The reason for this is because of a poorly researched business plan, or in many cases no business plan at all.

I can assure you, that if any of these entrepreneurs knew ahead of time that they were going to fail with their new business they would either wait until they had enough capital or they would make operational changes within their business model so as to allow for success. This proves then, that bankruptcy and business failures could be dramatically reduced with better research and better planning. This logical premise could apply to start-ups as well as business’s already in existence.

Your trading business, whether full time or part time is also a business and should be treated no differently with regards to its need for a well researched plan than any other business venture. Traders that are successful will always have a trading plan that serves as their road map to how they operate. Successful trading demands discipline and the adherence to a set of predetermined rules. Traders that shoot from the hip are like a drunk staggering down a street. There is very little control over the outcome and success will largely be due to luck.

Taking the time to write out your own trading plan will force you to look at all the components that make up the anatomy of a trade and the rules with which you will live by in order to be successful. In this article, we’ll go through some of the important categories that should be considered and included in your trading plan.

  • Personal Reasons For Trading

Though not specific to the rules of your system, this will help you to define your personal goals set for yourself as they pertain to your desired income or lifestyle that your forex trading will give you.

  • Your Office And Equipment

Take the time to know what your currency trading office set up will require. List computer hardware, software, printers, internet access, phone systems, office supplies and back up plans in place in the event of power or internet problems. Be sure to research the requirements for the platform and charting software you’ll be using. Online currency trading requires the right technology and your business operations need to remain organized.

  • Select A Forex Broker And Trading Platform

Do your due diligence on the broker and the trading platform they provide you. You need to be proficient with placing orders and managing your account. Place all relevant phone numbers and other information within your plan.

  • Hours To Trade

Establish your schedule and define how you are to be contacted during trading hours.

  • General Money Management Rules

These rules for money management pertain to your overall account, it’s size and certain rules you will establish for yourself outside of the money management rules that are specifically within your trading system.

  • Currency Pairs To Trade

Identify what instruments you plan to trade and why.

  • Trading Strategies

Notice that I listed strategy’s as plural…. this is if you intend to trade more then one method. However, each strategy will require it’s own set of very specific rules that very clearly define all the inputs and perimeters that make up that particular strategy. From position sizing, entries, exits, targets, stops etc… everything that is required of a good trading strategy will go here.

Some Final Thoughts

This list of categories and sections should give you some ideas as to the type of research and thought that needs to go into your forex trading plan if you intend to be successful. If you can develop the discipline to write a detailed trading plan you will probably have the discipline and the guidance to stick with the rules required of your system. By remembering to plan your trade and trade your plan, your odds of creating wealth as a currency speculator will be quite good.

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