Hello and Welcome to the ditto educational series that will provide you with the skills you need to become a forex trader!
Today we are going to be talking about building a successful plan! So far we have covered many topics surrounding the foundations of knowledge you must be familiar with, and we have reiterated some of the key principles in order to set them in your mind. If you have not watched the educational videos leading up to this one please do so.
Sometimes when learning to become a trader the overwhelming amount of information which is set out in a non linear path can make it hard to create a clear trading plan.
To much of the wrong information tends to create hesitation and confusion, thus in turn allows emotions to creep in. This can prevent us from taking a step back and looking at any situation subjectively.
Trading to a plan and documenting our trades most importantly allows us to measure success. This is fundamentally so important as those who do not remember history are doomed to repeat it.
We will never be able to beat the market. That’s not what success in forex is about, it’s not about winning or losing but rather being profitable overall. Remember with proper risk reward we can lose 50% of our trades and still make a profit!
To be successful you must trade to a plan that encompasses All of your knowledge without being over complicated. Writing your plan out will ensure you stay focused and allow you to reflect on whether you followed your plan or not and if details need to be changed in order to increase your probability of success. Following our plan will also help to manage our emotions as we are not trading based on emotion but rather by a set of rules.
Your plan needs to be extensively tested on a demo account to prove its effectiveness and stuck to rigidly when in demo and live trading. Let’s now look at son of the key components that will be included in our plan.
Firstly we need a trading plan structure. How do you begin to analyse the markets? Are we going to seek long term bias fundamentally within individual currencies then pair them accordingly? or do we take a more technical approach and begin outright with looking for high probability trades at prominent support and resistance levels? In order to execute a plan we need a guide, a series of steps that we find works well for us in terms of marrying our personalities and availability in life.
Next we have Research and education. If knowledge is power then in forex you will want to be yielding as much practical knowledge as possible, one of ditto trades aims is to provide you with this education free of charge. If you don’t put the time into your forex education then you are setting yourself up to fail.
It’s true that as a novice you make one or two correct decisions but without learning all the essential subjects you are going to lose all of your money. This also applies to the largely neglected fundamental analysis, traders sometimes ignore the subject as it’s a bit more difficult but it’s importance should not be underestimated.
Moving into Strategy surrounding fundamental and technical tools! These need to factor into your trading plan structure. Whether you are using fundamentals by utilising the economic calendar for trade news avoidance or using Fibonacci retracement tools to plot your entries you will want a written order to how these factor into your plan. Even if it’s as simple as 1: find a strong trend 2.check the economic calendar for high impact news 3.analyse using Fibonacci for entry, we want a physically written statement of practice to adhere to.
One of my favourite parts of the plan next we have Money and risk management! This is something you need to know inside out and practice religiously. How much is my bank? What percentage of risk am I taking on this trade? If I enter here my stop loss is here and I accept this! My take profit is 3 times my stop loss and if it doesn’t trigger I accept this!
Setting and forgetting is not a must buy closing your trades early is a big mistake traders often repeat. If you have not worked out your percentage of loss from entry to stop loss how will you know what your potential losses and gains are? Taking proper risk reward ratios are important as they serve for confirmation of our knowledge! When we are right we know it was because our trading plan and strategy were up to scratch and there was no flaw in our analysis.
Now we move on to timing! Operating as a trader will be dictated to you by your lifestyle, it is possible to change your lifestyle to trade however it’s far easier to bend trading around your existing responsibilities. Your never going to be happy waking up through the night to trade certain Windows’s and then trying to manage your day to day responsibilities so don’t even bother. You may not be a very organised person but my suggestion to you is to implement organisation and discipline in to your life. When you take on something like trading on top of a busy and unorganised lifestyle it can be over bearing.
Lastly What are your financial goals And why do you want to be a forex trader. The usual answers are financial freedom and sometimes for a hobby if you are retired or have a lot of time on your hands. If your goals are purely financial and especially financial need, you are encouraging emotional trading by actually putting requirement on your trading. If you need to make money or you are using all of your savings the worry and stress levels you will experience will see you fail quickly even if you have a solid foundation of knowledge.
Now please take some time to think about your trading plan. I hope you have enjoyed our educational session today and as always please sit back and contemplate what you have learned, remember Contemplation is the key to learning.