Developing a Forex trading business plan is among the first things you should do as a trader; it keeps you focused. Having a go-to manual full of tips, tricks, and strategies for success will be incredibly useful when dealing with erratic currency markets — you will always have something to refer back to.
Here are nine essentials for developing a winning Forex trade business plan.
1. Get Smart on the Market
The first step in planning is understanding what you are planning for, so you can prepare accordingly.
Spend some time studying the market and its dynamics. Look into basic forex trade concepts such as the eight major markets, types of markets, jargon and commonly-used terminologies, yield and return relationships, and leverage aspects. Study historical charts and try to predict market movements. You can even watch videos and listen to podcasts from trading gurus to get a ‘feel’ for the market.
This will also help you realize whether you want to pursue Forex trading or not, allowing you to better understand what you’re signing up for.
2. Set Goals
You need to determine why you wish to enter forex trading and what for. Is it just to make a quick buck, or are you in it for the long haul?
Defining specific goals will help you backtrack to the strategies you can use. For instance, if you want to make some quick money, you’re more likely to stick to spot markets rather than forwards and futures. Your strategies will also differ accordingly, and so will the level of risk you’re willing to take. Traders looking to earn quick money are usually not interested in long-term gains.
3. Choose your Forex Trading Strategy
A Forex trading strategy isn’t exactly a one-size-fits-all deal: you need to determine the kind of trader you will be. Do you feel more connected to day trading, position trading, swing trading, or long-term investing? Do you tend to make decisions based on historical data (Price Action Trading), or are you more inclined towards studying and analyzing trends (Trend Trading Strategy)?
Whatever strategies you decide on, it is imperative to have a detailed outline of each technique in your trading plan and an overview of the market conditions that best support that strategy. This way, you can refer to your plan for finding the best approach in different market conditions.
4. Determine Your Trading Times
Forex markets are open 24/5, leaving you with several time frame possibilities for trading. You can trade in 1-minute, 5-minute, 15-minute, 30-minute, 1-hour, 4-hour, 1-day, 1-week, and 1-month time frames. This results in endless possibilities that can distort your focus.
We recommend setting two to three (at most four) time frames that you deem suitable for yourself to trade in. Include these in your trading plan with detailed analyses of the market dynamics in each time frame.
Study and analyze the time frames you wish to trade in and keep a detailed record of your results in your Forex trading plan. Build your way towards a “cheat sheet” to use for the entirety of your trading journey.
5. Make a Watchlist
Forex markets can be overwhelming because of the sheer volumes of transactions and numerous possibilities of currencies to trade in. One way to keep yourself focused here is to make a watch list of currency pairs you wish to trade in.
We recommend starting with around ten currency pairs. Making a watch list will help keep you grounded and automatically draw you towards news about, or trends in, currencies on your list. Of course, as you move along your trading journey, you can keep expanding your list.
6. Have Entry and Exit Rules in place
A winning Forex trading business plan must contain rules for entering and exiting the market.
Begin working on when to join the trade while highlighting how you’ll enter with your chosen strategies. Also, you mustn’t overlook the exit side of things either: no matter how good of a trader you are, Forex markets are highly volatile, affected by thousands of variables every minute, and you need to know when to stop.
Exit rules are usually based on profit and loss levels on which you will quit trading a particular currency.
7. Define Your Risk
Trading is all about making gains, and no one is willing to bear consecutive losses.
Your Forex trading business plan must include the level of risk you’re ready to take. It can be a percentage on each trading transaction or the investment’s bottom line you’re willing to lose. At the end of the day, your success depends on whether your gains have outweighed your losses, and you need to evaluate each trade through the risk lens constantly.
You can also create a risk management plan to handle these risks better by identifying and assessing the risks you might face in Forex trading and strategies for their mitigation and control. This will ensure you’re always prepared to handle uncertain market situations.
8. List your KPIs
KPIs will allow you an objective assessment of your performance. You can consider the following:
Specify the minimum net profit you should make in a given period and consider tying your profitability to your capital investment. For instance, you can aim to generate at least a 30% ROI.
Percentage of Winning vs. Losing Trades
You can only be successful in Forex trading if you’ve made more money than you’ve lost. Keeping metrics for the minimum percentage of winning or the maximum percentage of losing trades can help you keep track of your performance.
Here, you can set the maximum amount of capital reduction after consecutive losing trades.
Your risk level determines this, including the maximum loss you can bear on a Forex trading transaction.
A proper Forex trading plan is essential as it helps bring self-discipline in a market with few rules and endless possibilities. The trick to having a winning strategy is incorporating each of the steps mentioned above in a way that is detailed enough to give you information but also sufficiently concise that you will go back to reread your plan. Make sure you keep updating it as well.
Be sure to keep it brief and to the point, and remember to go through it regularly, as your Forex trading business plan can only be a winning one if it comes to use.
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