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Currency Trading Information: Your Trading Plan

By James Roshwood

Republish: EasyPublish™ Published: 08Dec2009 Word count: 618 Viewed: 191 time(s) Get Free Content For Your Site

One of the most crucial pieces of fx trading knowledge that you should have if you are going to have any possibility of making money with forex trading, is how to put up your trading strategy. Having a good coherent plan that you can stick to, will make all the difference between profit and loss for many traders.

Remember that the majority of traders beginning out in forex trading lose money, so it is crucial to carry out everything you can to make certain that you are one of the profitable ones. Having a strategy will provide you a good start over most traders who simply start trading with no aim of where they are heading.

Having a profitable method is important of course but there are many of those out there. Most traders think that the trading system is the one thing that matters and use up all of their time searching for the flawless system that is guaranteed to make money for anyone. But no such trading system exists. Although there are a bunch of fine systems, no system will be successful without a trading plan that is tailored to the specific trader.

This means that you need to figure out your trading plan for yourself. Do not be alarmed however for the reason that it is quite straightforward. Your plan just needs to include three things:

1. Lot size

This can be measured in the number of positions that you will take on every single trade. It may vary according to the strength of your signals or it can be the same for each trade, but it ought to be clearly set out. Do not vary your lot size according to intuition, and do not vary it according to whether your earlier trade was winning or not.

When you are deciding on your lot size, you must also consider your gearing and what proportion of your total funds will be committed to a trade. This is part of your risk management plan and it is critical currency trading knowledge that you ought to always have by your fingertips.

2. Stop losses

Your strategy ought to include a stop loss, measured in terms of pips. Again you ought to consider the risk that you are taking as a proportion of your overall funds. In most cases you should target for a risk of around 2% for each trade. However, with selected systems or if you have a very low initial pot, you might want to go higher than that to prevent your stop loss being triggered too often. Just be wary that if you do that, you have a greater danger of going bust.

3. Level of Profit

You ought to also settle on the exit position for a winning trade, i.e. how many pips you are aiming to take. If you do not settle on this you will often be tempted to hold out as long as possible, praying that the trend will keep going your way. Often times you will be caught out by a unexpected reversal and a profitable trade can be turned into a loss. So it is very key to decide ahead of time how much profit you will take.

Once you have your strategy, it is crucial to keep to it consistently. Avoid the temptation to trade when the signals are not quite right, or to pursue your gut feelings in anything, at least until you have many years' experience of the market. Also, reduce interruptions whilst you are trading. This will help you to get out of making foolish mistakes and keep you concentrated so that you can make the best of all of the forex trading information that you have acquired.

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