How To Devise A Personalised Forex Trading Plan?
All individuals who step into the forex market have a common goal: making profits by trading international currency pairs. However, when we go deeper, the trading goals will be different and specific for each and every trader. Hence, we also need a personalised trading plan that we can follow to accomplish the goals that we have set for ourselves. These goals can be long-term, but we need to break them into smaller targets that can be attained one by one by following the steps stated in our plan or strategy. Today, I will be sharing some powerful tips that can help you easily create a personalised forex trading plan.
1. Start Out With Realistic Goals
Your trading plan will revolve around the goals that you want to achieve as a forex trader. This goal needs to be well-defined and realistic, and you should decide your goal or target based on your knowledge and skill level. Beginners should always stick to smaller targets as you cannot expect to hit bigger targets without enough experience in the volatile market. Using trading tools can be a great help in the beginning, as they allow traders to get important values regarding their trades beforehand. Initially, it may take some time to get used to the fast-paced nature of the forex market, and you should not have higher expectations during the beginner phase.
You need to start your journey with a long-term goal or objective so that you don’t feel any rush while engaging in trading. Your trading goal needs to be precise, practical, time-bound and actionable. If a trader simply sets a goal to make a profit of $1000, it does not say anything about the time period for attaining this goal or the method that would be followed to reach the goals, which makes it vague. Hence, you need to be serious about your goals, as the route you need to take for your trading journey will be decided by the goal.
2. Selecting a Suitable Trading Style
Your trading style reflects your personality and needs to be picked based on your preferences, skills, strengths and weaknesses. The trading style that you decide to follow should be in line with your trading goals as well. Basically, there are 4 types of trading styles that you choose as a forex trader. The first one is scalping, which is ideal for those who are not interested in waiting for a longer duration and just want to make some small profits within a short span of time.
Day trading can also be an option, but the time frame is longer and not as quick as scalping. Swing trading is relatively less stressful and more profitable if you are willing to wait for a while. Positional trading provides the highest profit potential if you have enough patience to wait longer.
3. Being Analytical
Forex trading success greatly depends on your ability to interpret the market situation in a logical manner and make a conclusion about the most probable price movement based on this analysis. Hence, being analytical is essential for becoming a profitable forex trader. Most forex traders rely on technical analysis to find ideal trade setups based on their strategy and place trades when they find the right opportunity. But you should also learn a bit about fundamental analysis because, many times, market movements cannot be anticipated without some knowledge about economic data releases and other relevant news events.
In technical analysis, you need to learn about the candlestick price charts and the chart patterns that need to be read or recognised to understand the market scenario. You can also use some reliable indicators that give you more insights about the market, allowing you to assess the situation more clearly and thereby make better trading decisions. You need to pick the kind of analysis that would go well with the trading plan or strategy that you have chosen and stick to the same while trading.
4. Relying on Risk Management
The next powerful tip I can give you for devising a personalised trading plan is always relying on risk management to secure your capital. Forex trading can never be free from risk as the market keeps moving, and the price movements may not turn out to be favourable in all situations. Your analysis, strategy and trading decisions can go wrong at times, resulting in losses during actual trading. Profitability is not about the absence of losses but about limiting the losses with risk management.
The risk you take for a trade depends on several factors, including the amount you risk, the winning rate of your strategy, and the risk/reward ratio. These factors will actually determine your potential profits and losses at the end of every trade. To calculate P&L in the base currency of your trading account, use a currency calculator. This will give you a clearer picture of the money you’ve gained or lost. Risk management is not just about cutting down the losses but also about maximising the profits without risking all of your capital. Risk management is all about striking a balance, and this kind of momentum is a must to make your trading plan or trading system work well in the long run.
5. Study About Forex Regulations
One thing that makes the forex market unique from other financial markets is that it is decentralised and not confined to a physical place, but at the same time, it is regulated and operates within legal boundaries. Those who get into forex trading must be aware of these regulations and how they work in the jurisdiction that they belong to. You need to ensure that the forex broker you choose for trading also follows these rules by checking their regulatory status.
A forex broker with a valid licence from a top-tier regulatory body like FCA, CySEC or ASIC will be an apt choice. These are just some examples, and you need to find the authority in charge of forex broker monitoring and regulations in your region and look for platforms that fall under their purview. This way, you can ensure a safe and seamless trading experience as they strictly follow the standards and security rules set by the regulator.
6. Account Management
Just having a solid trading plan will not be enough to take you closer to trading success, as discipline and account management are also relevant for long-term results. The money that you use for trading needs to be managed in an efficient manner. You need to treat your trading account like a bank account. Your bank account may have a large chunk of your funds, but you will never be using it all on a day-to-day basis. The transactions will be limited to set aside a substantial amount, which needs to be done in a trading account.
Your risk per trade should be limited to 2% or less of the total account balance or trading capital, ensuring enough free margin even if you place several trades. Free margin is actually the money that is there in your account after placing a trade. This is the amount of money that you can freely withdraw or use for additional trades. If you want to calculate the margin you need to allocate in a single trade, use a margin calculator. This makes your trading account safer and increases the success rate of your trading plan.
7. Regular Reviews and Modifications
The forex market is always evolving and changing. Hence, you can never hold onto just one thing forever and expect it to work in your favour. This applies in the case of trading plans or strategies as well. Even the best strategy can become unsuitable in a particular market situation. Clinging onto the same plan even after it stops working is not ideal in the dynamic currency market. You should be prepared to adapt to the changes that happen and approach the situation with an open mindset.
Hence, regular performance reviews and revising the strategy are something that I recommend to all forex traders. Sometimes, your strategy may still be working but will get better if you modify it a bit to be in sync with the current market scenario. You don’t need to switch from one strategy to another in every situation, but a little bit of improvisation without deviating from your actual plan is suggested to optimise your trading performance.
Personalising Your Trading Plan
Devising an all-new strategy or trading plan may not be feasible for many of us. A vast majority of beginner traders tend to stick to the popular strategies that are trusted and followed by many successful traders. But in this case, you need to customise this plan and give it a personal touch so that it fits well with your needs and requirements as well as risk tolerance. This kind of personalisation can bring good trading results.
