Most successful traders would agree that entering the world of forex without a trading plan in place is nothing short of suicide. For the inexperienced, however, it’s an incredibly common, and usually disastrous, mistake. 90 per cent of forex beginners lose money when they start trading currencies, and this lack of direction and forethought is usually the reason why.
Failing to prepare is akin to starting a business without a business plan or any understanding of the market, competition, or the products you’re trying to sell. As you can imagine, even if you rented office space and hired staff, your project would be doomed to failure from the start. So what you can do to change your fortunes? You can plan, and the same is true for trading forex.
Here are a few tips to get you started.
In order to deliver success, your trading plan needs to complement your style and personality. This will help you to formulate realistic goals that you can actually achieve. There is no one better qualified than you to find a trading strategy that suits you, so spend some time reading up on the different methodologies, assessing your attitude to risk, your resources, and how much time is available to you, and find a style that fits.
Create an Exit Strategy
One of the most fundamental contributors to your success will be formulating a viable exit strategy. It’s really important to limit the losses you incur by having a suitable plan in place before you start trading. Not only do you need to know when you’ll exit, but you also need to commit to sticking with your stop loss and profit targets to make sure that disaster doesn’t strike. If you let your emotions rule you, or become overly optimistic, you may find that your move away from a well-thought out plan proves catastrophic.
No one’s trading plan is infallible, and no strategy is immune to flaws. The best way to refine yours is to constantly re-evaluate it and be prepared to make changes where they’re necessary. Even if you only spend a few minutes once a week going over this, the better you can make your plan, the more success you’ll enjoy.
To help you in your evaluations, it’s important to keep detailed records of your trades. This means listing information on each one, such as the currency pair, set-up, entry, exit, and profit or loss. Although brokers like Oanda will record this information for you, it’s still worth keeping a more in-depth record of your own. The more data you have at hand, the easier it will be to identify the factors behind your gains and your losses. This information can be used to inform your evaluations, helping to bolster the former or limit the latter.
If you can create a well honed, carefully thought out plan, your chances of being successful will increase tenfold. It would be wrong to state that there is no luck involved in the game of forex, yet turning a profit is undoubtedly 9 parts skill for every 1 of luck. With the right strategy in place, you’ll maximise your chances of victory and take the foreign exchange market by storm.