Currency trading is full of plans, strategies, systems and rules so it is very easy for a beginner to get confused. In order to succeed in forex trading you need to be organized, disciplined, and alert to the market. However, when you trade currencies it is important to know the difference between two of your most important tools; your forex trading plan and your forex trading strategy.
A formal document which describes the currency trading scope, trading goals and expectation of the trading outcome is called Forex Trading Plan. A trading plan is necessary for every trade which is handled by the forex trader. When traders prepare a trading plan they must ensure all the aspects of the particular currency pair and exchange rate movements.
Different types of forex technical analysis and tools can be very helpful to build the trading plan. A trading plan is a more comprehensive document that includes the trading strategy along with other important information. Trading plans are customized to the person using them, but usually they include rules about money management, how much capital to risk per trade, the goals that trader is striving for, a system for analyzing trades etc.
A forex trading strategy is simply a collection of rules that determine how you enter and exit trades. Every professional trader uses more than one trading strategy for a very simple reason; typically trading strategies are either trend-following or trend-fading. Trend-following strategies work well in trending markets, but they do not perform well in sideways markets. You cannot trade one strategy all the time! When the markets are trending you use a trend-following strategy and when they are going sideways you use a trend-fading strategy.
Simply, the trading strategy is the trader’s rules to open and close the currency trade. This is based on the different trades, experience and the knowledge from that trading. However, the trading plan is the descriptive document for the trading activities. It customizes the trading actions of risk management, money management, rules, analyzing factors etc. Forex traders should create their own trading strategy on a time frame what suit their preferences and follow it.