Successful Trading Plan

Having a Successful Trading Plan

Last updated on September 11, 2020 by Vincent Nyagaka

The key to becoming a successful forex trader is developing a sound Forex trading plan and using it on a daily basis. One must remember that a trading strategy that may be working well for one person might not do the same for you. This is because everybody has a different style of thinking, risk tolerance levels, and market experience. It is always better to develop one’s own personalized trading plan and modify it as your experience grows.

So, a trading plan should define a few things;

  1. What trading strategies you are using?
  2. What pairs/instruments you are trading?
  3. What are your risk tolerance levels?

The first thing it should mention is what strategies you are using. So if you are trading pin bars or engulfing bars off key support and resistance levels, then it should state this in your plan. If you find yourself trading something else like inside bars, then you know you are deviating from your plan.

The next thing it should state is what instruments you are trading. For example, you may be only focusing on the EUR/USD, or perhaps the EUR/USD and GBP/USD. Make sure to state this in your plan.

Lastly, you want to have your risk tolerance levels clearly stated. This is not just % risk per trade, but also per session and per month. This way if you ever go over these parameters, you stop trading for the month and take a break as something is clearly not working.

But the key is to have these clearly defined ahead of time. Make sure that you maintain a trading journal that has logs of all your trades. This is important because it allows you to analyze your trades and the success of the plan adopted by you. It should include the entry date, entry price, exit price, stop, limit, total profit/loss, and final notes which are your personal notes on each trade.

I also suggest taking screenshots of every single trade you take, and color-coding them based on it being a win or a loss. Then at the end of the trading week, reviewing your trades to see how you did, what mistakes you made, and what you can improve/focus on for next week.
The plan can have a checklist of what you are looking for in the market before you decide to enter a trade. A list of such prerequisites helps to keep you trading with discipline and avoid any careless moves.
The creation of a trading plan is highly useful as it reduces the possibility of bad or irrational decisions based on emotions. The outlining of a plan for every potential market action will help you minimize such decisions and thus your losses. The key to disciplined and objective Forex trading is to establish a trading plan and stick to it.

Example:

Capital $10,000/=

Risk: Reward Ratio – 1:2

Risk – 2% = $200
Reward 4% – $400

We have 20 trading days in a month. Assuming you place 1 trade daily.
Let’s give a scenario where your profits and losses are 50/50.

a). 10 profitable trades 10 trades × $400= $4,000/=
b). 10 losing trades 10 trades × $200= $2,000/=
Net Profit in a month is $2,000/=

Say you have a 40% success rate.
a). 8 profitable trades 8 trades × $400= $3,200/=
b). 12 loosing trades 12 trades × $200= $2,400/=
Net Profit in a month is $800/=

Lets scale down to a realistic figure, capital that everyone here can afford to raise:

Capital $1,000/=

Risk: Reward Ratio – 1:2

Risk – 2% = $20
Reward 4% – $40

We have 20 trading days in a month. Assuming you place 1 trade daily.
Let’s give a scenario where your profits and losses are 50/50.

a). 10 profitable trades 10 trades × $40= $400/=
b). 10 losing trades 10 trades × $20= $200/=
Net Profit in a month is $200/=

Say you have a 40% success rate.
a). 8 profitable trades 8 trades × $40= $320/=
b). 12 losing trades 12 trades × $20= $240/=
Net Profit in a month is $80/= extra per month make a difference to your financial goals? If you trade like this, low risk but good returns, soon you will fire your boss. If you compound the profits for a few months, you will be able to do some projects every once in a while.

For those who have a higher success rate, you have no reason to be complaining of losses. If your trading method gives me a 75% – 90% success rate then that is a successful trading plan.

What makes us get margin calls is simply greed….we risk too much because we want to double our accounts fast!! We let losses run with the hope of reversals and too quick to close small profits for fear of losing that little profit.

Adopt this method and you will be successful in Forex. Trade like a crocodile. Wait for all the confirmations to have higher success rates.

Vincent Nyagaka is a Professional Trader, Analyst &. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker.

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