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How to Develop a Forex Trading Plan?

It is possible to have a few lucky successful trades in the Forex market. For a beginner, the Forex market can seem complicated and scary. After you have acquainted yourself with the basics of the Forex market, it is time to start trading. If you have not yet learned the basics, CAPEX.com Global Forex Brokers has a curated Forex academy that gives you a step-by-step online trading course.

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Every Forex trader has a trading strategy. These strategies involve finding trading patterns by following signals, through technical or fundamental analysis, or daily news. Risk is inherent for every method that you will adopt for your trading. To ensure a sustained profitable Forex trading, you must develop a trading plan.

What is a Trading Plan?

A trading plan can best be described as a personal guideline on how you intend to trade in the Forex market. It includes your financial goals; your risk management – how much of your capital you are comfortable risking, and the type of Forex orders you will use.

Your trading plan should be thoroughly researched. So, before you embark on developing a trading plan, ask yourself these questions.

Questions to ask yourself before creating a Forex trading plan

Question 1: Why do you want to trade Forex, and what type of trader do you want to be?

Before you deposit with your Forex broker, you need to establish your reasons for Forex trading. These reasons could be:

  • How much do you wish to earn from forex trading?
  • How much investment do you wish to make?
  • How long do you wish to be a Forex trader?
  • Are your goals short- or long-term?

These questions will help you to implement the optimal risk management measures

Depending on how your answers to the above questions are, your next step will be to establish what kind of trader you want to be. Would you like to be a day trader, a scalper, a swing trader, or a position trader?

If you are unsure of this, sign up for a Forex trading account and trade with a demo account in live Forex market conditions to help you sharpen your skills.

Question 2: How much capital do you want to invest?

Forex trading is a business, and, naturally, as with any business, you need to invest capital. You have to assess your financial position and determine the amount you are willing to put up in the Forex market. After you have established this, you can proceed to fund your trading account.

Question 3: How much time do you wish to spend trading Forex?

The Forex market is a 24-hour market. Unless you are taking Forex trading full-time, it doesn’t mean you have to spend all your waking time monitoring the market. The daily trading sessions in various cities will help you to select the suitable trading hours, depending on your preferences.

CAPEX Global Forex BrokerSource: CAPEX Global Forex Broker (za.capex.com)

CAPEX.com Forex broker provides you with a daily timeline for significant trading sessions in key global cities. This timeline is important as it will guide you on when the market is highly liquid and when it is prone to volatility.

Question 4: Can you accept the risks that are involved with Forex trading?

Anyone who tells you that Forex trading is risk-free is lying to you! The volatility inherent in the Forex market provides an opportunity for profiting but also presents a risk that could wipe out your investment. Therefore, when you are making a trading plan, you should consider risk management techniques. If you are not familiar with risk management measures, CAPEX.com Forex broker has a range of risk management measures that you will find helpful.

After you have answered these four questions, you can start developing your trading plan. Below are some elements to consider when developing your trading plan.

Elements to consider when developing a Trading Plan

#1 Must be grounded on sound research and education

Opening a Forex position should be an informed decision. Whether you are using fundamental indicators, news reports, or technical analysis, you should know with certainty what you are doing.

In technical analysis, you should know how the indicators you employ work. CAPEX Global Forex Trading provides a free educational tutorial on technical Forex indicators.

If you are using news trading and economic indicators, you must know how the market will potentially react when they are published. CAPEX.com Forex broker has a real-time economic calendar, an up-to-date Forex market news segment, and inciteful Forex market analysis to help you keep track of events that move the market.

#2 Well-established entry and exit points

An informed Forex trading plan will enable you to set exact entry and exit points for every trade.

Technical indicators can help you know when market trends are shifting. Using the economic calendar can help you choose the best timing of trade since the release of some data is accompanied by volatility.

Your Forex trading plan should indicate the type of analysis you will use, the timeframes for your trades, and the kind of Forex orders to incorporate in your trading.

#3 Proper risk management techniques

In the Forex market, it is possible to be completely wiped out with a single bad trade. To reduce the chances of this happening, you must implement proper risk management.

It would be best if you used minimum leverage depending on your risk limit. Your trading plan should clearly state the risk level and amount per trade to protect your capital. Depending on your profit goals, you should use ‘take profit’ and ‘stop-loss’ to ensure you are protected even when you are not monitoring your trades.

CAPEX.com Global Forex Broker provides its traders with conservative leverage to prevent massive losses. Furthermore, CAPEX.com offers all traders negative balance protection.

Bottom Line

The first step to ensuring consistent profits in the Forex market is to develop a trading plan. However, whether you are a beginner or an experienced Forex trader, having a good trading plan will not prevent your account from being wiped out if you do not adhere to it.

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finance blogger

The idea of starting a blog has been hitting me for long; I took it seriously after falling into a spiral of debt and recovering from it.

I have been anxious all through the financial difficulties. I see that same anxiety in the eyes of people, whose ill fate has put them at odd with financial repose.

It makes me compassionate. Out of this compassion and goodwill, I started this blog. I wanted to help all those, who are facing financial distress.