A good trading plan defines your fiscal goals and how you will operate to reach those objectives. It is very easy to say that “I will transform $ 20,000 into $ 350,000 in a year by investing in Forex” without having precise information on how to exchange currencies, how often, on what term and with what possibility of loss. Without the facts, it’s just an elegant fiction and not likely to come true. A genuine trading plan incorporates details about the key mechanism.
What if I do not follow the trading plan?
Surely, throughout your life you have heard hundreds of times the positive effects of having a plan. Trading in financial markets is no exception and not having a trading plan is one of the common mistakes that Forex traders make.
Possibly the reason for this error is the lack of a clear understanding of how a good trading plan has to be.
A trading plan is a strict set of policy or rules, partially of which come from the trading strategy itself and the remaining from the money management policy. Then it is possible to complement the plan with all the points that the operator considers necessary.
A trading plan looks a lot like a list of things you shouldn’t do when you are drunk, among which we can find: Do not drive, do not call your ex, do not climb high structures and do not make stupid bets that make the police arrest you, just like running naked in the street.
Each person has their own list of things to avoid in life, so we also recommend doing the same with trading.
This is an example of a trading plan:
- Definite market circumstances to open an operation
- The quantity of money to risk in an operation
- Definite market circumstances to exit if you make a mistake
- Definite market circumstances to exit if you hit
- Estimated time for the market to achieve the proposed objectives
Write down and keep track of everything!
Write this list in the form of postulates and put it where you can see it before, during and after operating. Frame it and hang it on the wall, or set it as a desktop background.
You may think that you don’t really need a plan, but this is one of the mistakes many Forex traders make.
In the Forex market, things can get agitated quickly because brokers have a lot of freedom to grant leverage and more beginning traders fall behind in the discipline of money management. The combination of these two factors makes trading dangerous and risky.
Below we will detail some questions that operators should ask themselves to not make one of the most important errors in Forex trading:
- Am I investing only my venture capital? (Can I afford to lose this money?).
- What is the maximum percentage of my total investment that I am willing to lose in a single operation?
- What is the maximum number of operations that I can open simultaneously?
- What is the profit / loss ratio that my strategy promises?
- Does it meet my risk / benefit ratio per operation?
Set wrong goals
What is the best approach to trading; do things the right way, even if it potentially means making less money, or doing things in any way as long as there is the possibility of earning more money? This is a difficult question, since the healthiest thing for both the operator and the balance of his account is not to think about money at all. If making money is the sole goal of the operator, especially in the early stages of his career trading, this will eventually be the reason for its failure.
This approach causes traders to break their own rules, their trading plan. In some exceptional cases, breaking the rules can bring greater benefits, although, in the long run, this usually always ends the account balance.
Generally this problem usually occurs in the following ways: operate in excess and analyze in excess.
Trading too much is one of the mistakes that many Forex traders make . Normally this error may be due to insufficient capitalization that causes the operator to use volumes that are too high in relation to the balance of his account. This error can also be caused by an addiction to trading that force the person to operate too much.
Trading is not a hobby; it’s a job. Poker is a hobby you can do on Fridays; it is fun and may give you some money, even if it is generally not the case. Let’s accept it. Most people who bet know that they probably won’t win because they are only trying their luck while having fun in the process. Regardless of whether they lose or win, it is money well spent.
In trading, you invest money to earn money, which makes this activity a business. The fun is not relevant at all. If you ever expect to make money consistently in Forex, act like an entrepreneur.
Studying, researching, planning, following the plans, taking notes of your progress and protecting your investment are your best allies. Not following these simple techniques is one of the worst mistakes that Forex traders can make.