Foreign Exchange Trading Online: Fail to Plan, Plan to Fail

Forex Trading Online

It’s a tough question to answer because, when you really think about it, you will realize you haven’t been really listening to your indicators but have been trading emotionally. For example, the EUR/USD has been trending down all day, but suddenly you see a few white candles appear with what appears to be considerable momentum. You quickly enter a long position without checking your indicators because you “know” the market has changed direction. Then, just as suddenly, price begins to drop again, continuing the downtrend. This is why designing a trading plan and being disciplined enough to follow it to the letter is the key to successful foreign exchange trading online.

Foreign Exchange Trading Online: The Essentials of a Trading Plan

When it comes to foreign exchange trading online, you can devise a plan that is as simple or as complex as you desire, but the key to being profitable is actually sticking to your plan. However, there are certain components every plan should include but just remember that if your plan is to complex you might miss out on a lot of trading opportunities but if your plan is too simple you could receive a lot of false forex trading signals. Therefore, balance is key.

So, what are the basic components that every plan needs? Well, first and foremost, you will need a forex trading system. This is the most important aspect of your plan and should include all the vital information such as which time frames you will be using to trade, which indicators, patterns or other tools you will be using to determine your entries and exits, which currencies you will be trading and when, how many lots you will be trading and the how much you are willing to risk or lose and so on.

However, before you start trading your system, you will need to ensure it works. You can’t simply decide on two indicators and one chart pattern and then expect it to work right off the bat. You need to test your system and there are two ways to do this. First, you should back test it on historical date and then you need to use the system on a demo account to see if it works in real market conditions. Traders recommended testing your system on a demo account for anywhere between one week and two months.

Remember, though, that no system will generate perfect results. You simply want to make sure that you are placing enough profitable trades so that at the end of the day your account balance has gone up, even if that means you are only right half the time.

After you have your system in place, you will have to establish your routine. This is important for a number of reasons but mainly because the market behaves differently at different times. So, for example, if you prefer to trade in a less volatile climate, you might want to trade the EUR/USD during the Japanese session.

You also need to establish your goals because simply trading to make lots of money is not a good system. The problem is that if you don’t have clear goals of how much you want to make then you can end up overtrading. The latter is a big issue for many traders because it usually leads to emotion taking over which leads usually leads to loss.

You should also keep a trading journal of all the trades you make, but especially the losing ones. You need to write down everything you did, including the system you used to enter and exit because you can later analyze and learn from your mistakes.

In conclusion, you can make a lot of money with foreign exchange trading online but you won’t be able to do it if you don’t have a proper plan in place and the discipline to stick to it. You might scoff at the idea of having so many rules but once you understand that 95% of traders fail because they don’t have a plan or don’t stick to it, you might change your mind.

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