Having a forex trading plan and keeping a trading journal is essential for anyone serious about trading forex. In order to learn from past mistakes and to ensure that you consistently execute your traders based on analysis rather than intuition and emotion you need to have your own trading plan where you will keep your journal of all the trades and you can study your own track record.
When we are approaching forex trading where personal decisions are translated into profits or losses having a well outlined and easy to follow plan can make the difference between success and failure. Having goals set in advance and knowing when to get out of a trade make up an important part of successful forex trading. Your plan should cover all aspects of currency trading and you should read it every day so you will always know what to do in every situation.
The first part of any trading plan involves the entry. You should know exactly when you should get in a trade. Have your entry criteria written on a post or note and slap that note somewhere so that you can always keep an eye on it. In addition to this you should know your reasons for the entry, why you enter a particular trade and what your profit expectation from this trade is.
Next thing you should do after you enter any trade is to limit your risk. You do this by having pre-planned exit criteria and knowing beforehand where to put your stop loss. Once the stop loss is set don’t move it to allow “more room for the trade to breathe”. Only move the stop loss if a trade goes in your favor to lock in profits. Moving the stop loss to allow more room is one of the biggest trading mistakes newer traders make.
The last part that any trading plan should include is a defined way to take profits once you’re in an earning position. This doesn’t mean that you should always have a set take profit order that limits your upside potential. You can use stop losses to lock in profits instead. Once you exit profitable trades make sure you are not going to become overconfident and jump back in without good risk management.