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Why You Should Have a Forex Trading Plan
Written by: PaxForex analytics dept - Wednesday, 01 February 2017 0 comments
Forex trading is a zero sum game and those with a trading plan and the necessary discipline to stick to it will succeed over those that trade without one. If you want to succeed in the forex market, you need to be able to plan ahead. If you decide to dive head first into the forex market without any preparation the chances of you succeeding are very unlikely. You need to know what you're looking for, what your aim is and how you plan to achieve your goals.
Trading plans are a lot like insurance: People don’t usually want it until they have already faced a catastrophe. Maybe it was a big loss on a single position, or perhaps even worse, a margin call from one bad trade, the trader will often recognize that something needs to be done. But regardless how one gets there, just the fact that they arrive at the destination of realizing that a trading plan isn’t just a preference, but often a necessity is generally a positive development in the career of the trader.
Basically, having a trading plan helps traders treat trading forex more like a business. Most people interested in forex trading already know that anyone running a business generally requires a business plan in order to have an organized basis from which to achieve greater
success. Furthermore, the objectivity and clarity that a good trading plan provides can be a real boon when needing to make quick trading decisions to take advantage of opportunities that may arise in the often fast moving forex market.
Making decisions randomly means there is no research behind what you are doing, it is just an impulse or whim. Trading in such a way is like taking out a boat out with no paddles and hoping the current takes you to the right location. It is gambling. You have no defined “edge” which is proven to make consistent income. Each whim has a chance to work out, and may even work out several times in a row, but luck eventually runs you. You need a plan you can test rigorously, and practice. The trading plan gives you your edge.
The plan does not have to be complex, and you may find it considerably easier to maintain discipline and execute the trading plan if it has relatively simple rules. Of course, you will want to write down each one of your trading plan rules in detail to provide you with something to refer to when you are trading. In essence, if you went to all of the time and trouble of developing a decent trading plan in the first place, the least you can do is follow it when trading.