Even one bit of bad news can send the euro into a freefall against major currencies, leaving your account badly damaged. After all, the profits are yours and you can do whatever you want with them. That said, you want to approach everything as strategically as possible.

You either cash out all your profits at the end of the month, or you cash out a fixed percentage and let the rest grow in your account. Naturally, the more your goal is building wealth as opposed to making income, the more you must leave in your account. That way, you can benefit from compounding to a much larger extent. Many people confuse trading strategies and trading plans. However, if you have read this far, you should see that a strategy is just one piece of the puzzle.

The key is to understand that building a strategy is a process and takes time. In fact, completing the steps is just the beginning that allows you to move on to backtesting. Backtesting is the process of applying your trading approach to historical market data to see how it would have performed. If the result is not optimal, you make a change and backtest again. Rinse and repeat until everything is great.

When it comes to backtesting, almost everybody talks about it as if it were relevant only for trading strategies. While backtesting is indeed centered around the strategy, once you have a trading plan, you must also backtest the plan at the same time. At a minimum, you must observe your money management rules. But, again, make one change at a time. If you bumped up your risk level, keep everything else intact for that testing round.

To begin, note the general parameters of each trade. In MetaTrader, you can access this information by looking at the open position window or clicking the account history tab for already closed trades. Next, add two screenshots of the trade. Ideally, you will take a photo right after you open the position, and another photo right after you close it.

Feel free to write notes on the photos if needed. The following step is to explain the signal that made you open the trade. The signal is defined in the strategy; you just name it here. The same goes for the exit signal. Finally, add some comments. How did you feel before opening the trade, while the trade was open, and after the trade was closed?

Answer these questions and add any other information you find important. By reviewing your trading journal every week or month depending on how frequently you trade , you can spot recurring blunders and take the necessary steps to correct them. Entering the trade without being clear about your motivation might not give you the commitment needed for success.

Note down what you plan to achieve by trading and include the time you plan to set aside to commit yourself to trade. Working out the time you need to set aside for trading is another way to create a successful plan.

Do you want to trade part-time as you continue to carry on with your other day-to-day activities, or do you want to trade only at some specific times of the day or night? Trading full-time will mean carrying out more trades. Whether you plan on long hours or shorter hours of trading, you will need some time to prepare for your trading activities. This might include analyzing the money markets, educating yourself on the market trends, and practising your trading strategies.

Deciding on the kind of trader you want to be will make it easier to define your goals. If you make a promise to increase your investment by a certain percentage by a specified period, it means the goal at hand will help you attain your success.

The trading style you choose should go with attitude, especially to risk, personality, and the amount of time you are willing to set aside for trading. You cannot start trading without deciding how much capital you want to spend on the currency market. Whatever amount you decide to go with, make sure it will not affect you much in case of a loss.

You have to remember that forex trading involves many risks and if you are not careful, you could lose your initial investment capital. If by any chance, you do not have enough capital to start you going, you can practice trading through a demo account until you have your footing. Before creating the perfect trading plan, you should learn the market trends because they will be part of your decision. Another thing to learn about is the opening and closing times of the markets.

How to Create a Trading Plan for Forex in Intro Benjamin Franklin said, "By failing to prepare, you are preparing to fail. What is a Forex Trading Plan? Why do you Need a Plan? If you are still unsure whether you need to spend time on preparation for your trading activities, we hope these 9 arguments will convince you: A plan simplifies trading from both practical and psychological points of view. It is more difficult to succumb to irrational impulses and make a mistake when you have a guide at hand.

Preparation helps predict challenges that may get in the way and subsequently develop solutions before these challenges come up. A well-drafted action scheme urges you to think, "What will I do if this or that happens? A well-organized plan not only helps formulate where you want to get but also determines the timeframes for each step of the way.

It is also much easier to evaluate your performance based on your plan. Given a list of what you have done, you can say what has been done well and what could have been done better. Planning helps to build self-discipline and make fewer mistakes. People who neglect the preparation stage tend to be less organized and less assertive when trying to achieve something. The planning process urges people to think outside the box and generate new ideas.

Thinking ahead of time requires creativity. So looking for an answer to the "how" question may bring you to innovative ideas. Having a well-designed strategy puts you in a position where any mistake can be corrected easily and with minimum loss. Even if you stumble, you will get up quicker than those without a plan. And finally, this might sound too obvious, but we will mention it just in case: if you adhere to a good strategy, the chances of failure reduce greatly. Trading Plan Guide First of all, a plan must be written down.

Keep your goals clear and realistic as it is nothing but frustration in failing to reach the unreachable. A plan cannot be static. Always review and adjust your guide in accordance with the market. Determine what points of your strategy should not be changed under any conditions. Try it on a smaller investment if you are unsure. So the best you can do is look at trading plan examples critically, filtering what you could use yourself but not repeating the whole thing blindly.

Analyze your performance.

The first option is that you simply take a piece of paper and start to note everything you find important. The strategic management process is a six-step process that encompasses strategy planning, implementation, and evaluation. This is the same process that companies like Apple use to define organizational objectives.

Source: Stephen P. Robbins, Mary Coulter — Management, 11th Edition , Prentice Hall. To get the most benefit from this guide, make sure to read all the steps carefully and in order. Some of you have probably already heard of the SMART goals formula. It forces you to map out the process and support your ideas with facts. Simply put: There are internal and external factors that you need to consider when developing a trading strategy. Did you know that, above all, trading is a psychological game?

The major reason why people fail usually boils down to trading psychology. Fear, greed, and regret can prompt people to do all kinds of crazy stuff. An internal analysis will allow you to create an environment — both mental and physical — that capitalizes on your strengths and minimizes the situations that expose your weaknesses. Try to be as factual as you can get.

Besides discovering your psychological traits, you need to consider factors that lie outside of you. For example, you might be a millionaire with a degree in economics and hours of uninterrupted time for trading. In this case, your opportunities include money, relevant professional knowledge, and time.

On the other hand, you might live in a place where the internet connection is hit or miss. Those are threats. Some of your trades might not go through, and you are missing out on the most active market period. Similarly, come up with some external factors that pose opportunities and some that are rather threatening to your trading career.

A trading style is a particular manner of trading, typically determined by the length, timing, and frequency of your trades. It would be a large detour to talk about them here, but we have an entire guide on trading styles that will help you out. Think about it as choosing a shoe. Before you start putting together a trading strategy, you need to lay down some solid money management rules.

When your trading career depends on available trading capital, protecting your account becomes an important factor.

In other words, you must avoid risks that can put you out of business. First, the market is a very uncertain environment. This is pretty solid advice and we tend to say the same. When we talk about aggregate risk, we refer to the risk your account is exposed to considering all open trades. If you use the same risk percentage on each position, your aggregate risk will be the number of open trades. If you trade multiple currency pairs, it makes sense to go even further and set rules regarding aggregate risk per currency.

Even one bit of bad news can send the euro into a freefall against major currencies, leaving your account badly damaged. After all, the profits are yours and you can do whatever you want with them. That said, you want to approach everything as strategically as possible. You either cash out all your profits at the end of the month, or you cash out a fixed percentage and let the rest grow in your account.

Naturally, the more your goal is building wealth as opposed to making income, the more you must leave in your account.

That way, you can benefit from compounding to a much larger extent. Many people confuse trading strategies and trading plans. However, if you have read this far, you should see that a strategy is just one piece of the puzzle.

The key is to understand that building a strategy is a process and takes time. In fact, completing the steps is just the beginning that allows you to move on to backtesting. Backtesting is the process of applying your trading approach to historical market data to see how it would have performed. If the result is not optimal, you make a change and backtest again.

Rinse and repeat until everything is great. When it comes to backtesting, almost everybody talks about it as if it were relevant only for trading strategies. While backtesting is indeed centered around the strategy, once you have a trading plan, you must also backtest the plan at the same time.

At a minimum, you must observe your money management rules. But, again, make one change at a time. If you bumped up your risk level, keep everything else intact for that testing round. To begin, note the general parameters of each trade.

In MetaTrader, you can access this information by looking at the open position window or clicking the account history tab for already closed trades. Next, add two screenshots of the trade. Ideally, you will take a photo right after you open the position, and another photo right after you close it.

Feel free to write notes on the photos if needed. The following step is to explain the signal that made you open the trade. The signal is defined in the strategy; you just name it here. The same goes for the exit signal. Finally, add some comments. How did you feel before opening the trade, while the trade was open, and after the trade was closed?

Answer these questions and add any other information you find important. By reviewing your trading journal every week or month depending on how frequently you trade , you can spot recurring blunders and take the necessary steps to correct them.

In addition, it is a great opportunity to monitor your trading plan. If you generally do everything correctly, but your results start to significantly diverge from those of the backtesting data, it might be time to revise your plan.

However, you must think smart and make adjustments. It might reveal that most losses happen because a price swing takes you out of the market. In that case, you can keep wider stops. Or it might reveal that one specific technique is producing the bad trades.

Then, you can either eliminate it or try to make some optimizations. This guide lays out an exact process that you can follow step by step. It is based on a model that has already been proven to generate results for billion-dollar companies. There will be moments when the process gets grueling. We all know how important it is to have a solid forex trading plan. But how do you get started?

How to Create a Forex Trading Plan There are two options: The first option is that you simply take a piece of paper and start to note everything you find important. Needless to say, this is not the best approach. How to Develop a Forex Trading Strategy That Works [Step by Step]. Want the inside scoop? JOIN THE COMMUNITY. Subscribe to get Forex education materials delivered to your inbox once a week. Send me great stuff Join the Community By subscribing we will send you education emails about Forex trading.

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Trading FX or CFDs on leverage is high risk and your losses could exceed deposits. Any advice or information on this website is written exclusively for educational purposes. It does not contain recommendations or calls for the purchase, sale or storage of any financial instruments.

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Best Forex learning platforms. Remember that capital growth only means the dollar amount risked on each trade will expand. What are the trading styles? A precise plan can help by identifying expected outcomes, setting realistic goals, understanding the risk profile, which in turn defines the trading strategy and style. A new plan should be tested first to make sure you are on the right track.

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