Even one bit of bad news can send the euro into a freefall against major currencies, leaving your account badly damaged. After all, the profits are yours and you can do whatever you want with them. That said, you want to approach everything as strategically as possible.

You either cash out all your profits at the end of the month, or you cash out a fixed percentage and let the rest grow in your account. Naturally, the more your goal is building wealth as opposed to making income, the more you must leave in your account. That way, you can benefit from compounding to a much larger extent.

Many people confuse trading strategies and trading plans. However, if you have read this far, you should see that a strategy is just one piece of the puzzle. The key is to understand that building a strategy is a process and takes time.

In fact, completing the steps is just the beginning that allows you to move on to backtesting. Backtesting is the process of applying your trading approach to historical market data to see how it would have performed. If the result is not optimal, you make a change and backtest again. Rinse and repeat until everything is great. When it comes to backtesting, almost everybody talks about it as if it were relevant only for trading strategies. While backtesting is indeed centered around the strategy, once you have a trading plan, you must also backtest the plan at the same time.

At a minimum, you must observe your money management rules. But, again, make one change at a time. If you bumped up your risk level, keep everything else intact for that testing round. To begin, note the general parameters of each trade. In MetaTrader, you can access this information by looking at the open position window or clicking the account history tab for already closed trades.

Next, add two screenshots of the trade. Ideally, you will take a photo right after you open the position, and another photo right after you close it. Feel free to write notes on the photos if needed. The following step is to explain the signal that made you open the trade. The signal is defined in the strategy; you just name it here. The same goes for the exit signal. Finally, add some comments. How did you feel before opening the trade, while the trade was open, and after the trade was closed?

Answer these questions and add any other information you find important. By reviewing your trading journal every week or month depending on how frequently you trade , you can spot recurring blunders and take the necessary steps to correct them. There is no absolute plan to be followed, however, there are different aspects to consider when developing a plan. These aspects include the trading goals, risk tolerance, investment capital, psychology, the motivation for trading, trading tools and risk management rules.

A trading plan should be distinguished from a trading strategy, which is more focused on when to enter and exit a trade. A trading strategy will be based in market technical analysis or fundamental analysis to enhance trading profitability and minimize risk exposure.

The trading strategy is a part of the overall trading plan. Developing a plan to serve as a guiding framework is very crucial to achieve consistent profitability in trading. It is pretty much like a road map that keeps you on track to your trading goals. A good plan will help you in taking rational trading decisions, by sticking to its rules.

Benefits of a having a plan also include:. You have to do your own research and create a plan that suits your individual trading objectives. Remember that the strategy you choose for trading will have a key effect. A new plan should be tested first to make sure you are on the right track. You can test your plan on a demo account before applying on live trading. Continue testing it regularly, to measure your success by sorting out what works and what does not work for you.

Outlining your motivation for trading is a crucial step in developing your plan. Ask yourself why you want to trade and what you want to achieve. Define your trading objectives and set realistic goals.

Remember that the goals should be consistent with your trading strategy, investment capital and risk management rules. The plan you create should depend on your trading style, strategy, personality and knowledge. There are different trading strategies including swing trading, day trading, scalping and position trading.

You just need to know which category you belong to. Your plan depends on which market you trade. Don't take it personally. Professional traders lose more trades than they win, but by managing money and limiting losses , they still make profits.

Before you enter a trade, you should know your exits. There are at least two possible exits for every trade. First, what is your stop loss if the trade goes against you? It must be written down. Mental stops don't count. Second, each trade should have a profit target. Once you get there, sell a portion of your position and you can move your stop loss on the rest of your position to the breakeven point if you wish.

This comes after the tips for exit rules for a reason: Exits are far more important than entries. A typical entry rule could be worded like this: "If signal A fires and there is a minimum target at least three times as great as my stop loss and we are at support, then buy X contracts or shares here. Your system should be complicated enough to be effective, but simple enough to facilitate snap decisions. If you have 20 conditions that must be met and many are subjective, you will find it difficult if not impossible to actually make trades.

In fact, computers often make better traders than people, which may explain why most of the trades that now occur on major stock exchanges are generated by computer programs. Computers don't have to think or feel good to make a trade. If conditions are met, they enter.

When the trade goes the wrong way or hits a profit target , they exit. They don't get angry at the market or feel invincible after making a few good trades. Each decision is based on probabilities, not emotion.

Many experienced and successful traders are also excellent at keeping records. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don't repeat unnecessary mistakes. Write down details such as targets, the entry and exit of each trade, the time, support and resistance levels, daily opening range , market open and close for the day, and record comments about why you made the trade as well as the lessons learned.

You should also save your trading records so that you can go back and analyze the profit or loss for a particular system, drawdowns which are amounts lost per trade using a trading system , average time per trade which is necessary to calculate trade efficiency , and other important factors.

Also, compare these factors to a buy-and-hold strategy. Remember, this is a business and you are the accountant. You want your business to be as successful and profitable as possible. The percentage of day traders that quit within two years, according to a paper titled "Do Day Traders Rationally Learn About Their Abilities" by Barber, Lee, Liu, Odean, and Zhang. After each trading day, adding up the profit or loss is secondary to knowing the why and how.

Write down your conclusions in your trading journal so you can reference them later. Remember, there will always be losing trades. What you want is a trading plan that wins over the longer term. Successful practice trading does not guarantee that you will find success when you begin trading real money. That's when emotions come into play. But successful practice trading does give the trader confidence in the system they are using, if the system is generating positive results in a practice environment.

Deciding on a system is less important than gaining enough skill to make trades without second-guessing or doubting the decision. Confidence is key. There is no way to guarantee a trade will make money. The trader's chances are based on their skill and system of winning and losing.

There is no such thing as winning without losing. Professional traders know before they enter a trade that the odds are in their favor or they wouldn't be there.

By letting their profits ride and cutting losses short, a trader may lose some battles, but they will win the war. Most traders and investors do the opposite, which is why they don't consistently make money.

Traders who win consistently treat trading as a business. While there is no guarantee that you will make money, having a plan is crucial if you want to be consistently successful and survive in the trading game.

Barber et. Trading Skills. Futures and Commodities Trading. Day Trading. Automated Investing. Company News Markets News Cryptocurrency News Personal Finance News Economic News Government News.

Your Money.

The first option is that you simply take a piece of paper and start to note everything you find important.

The strategic management process is a six-step process that encompasses strategy planning, implementation, and evaluation.

This is the same process that companies like Apple use to define organizational objectives. Source: Stephen P. Robbins, Mary Coulter — Management, 11th Edition , Prentice Hall. To get the most benefit from this guide, make sure to read all the steps carefully and in order.

Some of you have probably already heard of the SMART goals formula. It forces you to map out the process and support your ideas with facts. Simply put: There are internal and external factors that you need to consider when developing a trading strategy. Did you know that, above all, trading is a psychological game? The major reason why people fail usually boils down to trading psychology.

Fear, greed, and regret can prompt people to do all kinds of crazy stuff. An internal analysis will allow you to create an environment — both mental and physical — that capitalizes on your strengths and minimizes the situations that expose your weaknesses. Try to be as factual as you can get. Besides discovering your psychological traits, you need to consider factors that lie outside of you. For example, you might be a millionaire with a degree in economics and hours of uninterrupted time for trading.

In this case, your opportunities include money, relevant professional knowledge, and time. On the other hand, you might live in a place where the internet connection is hit or miss. Those are threats. Some of your trades might not go through, and you are missing out on the most active market period.

Similarly, come up with some external factors that pose opportunities and some that are rather threatening to your trading career. A trading style is a particular manner of trading, typically determined by the length, timing, and frequency of your trades. It would be a large detour to talk about them here, but we have an entire guide on trading styles that will help you out. Think about it as choosing a shoe. Before you start putting together a trading strategy, you need to lay down some solid money management rules.

When your trading career depends on available trading capital, protecting your account becomes an important factor. In other words, you must avoid risks that can put you out of business.

First, the market is a very uncertain environment. This is pretty solid advice and we tend to say the same. When we talk about aggregate risk, we refer to the risk your account is exposed to considering all open trades. If you use the same risk percentage on each position, your aggregate risk will be the number of open trades. If you trade multiple currency pairs, it makes sense to go even further and set rules regarding aggregate risk per currency.

Even one bit of bad news can send the euro into a freefall against major currencies, leaving your account badly damaged. After all, the profits are yours and you can do whatever you want with them. That said, you want to approach everything as strategically as possible. You either cash out all your profits at the end of the month, or you cash out a fixed percentage and let the rest grow in your account.

Naturally, the more your goal is building wealth as opposed to making income, the more you must leave in your account. That way, you can benefit from compounding to a much larger extent. Many people confuse trading strategies and trading plans. However, if you have read this far, you should see that a strategy is just one piece of the puzzle.

The key is to understand that building a strategy is a process and takes time. In fact, completing the steps is just the beginning that allows you to move on to backtesting. Backtesting is the process of applying your trading approach to historical market data to see how it would have performed. If the result is not optimal, you make a change and backtest again. Rinse and repeat until everything is great. When it comes to backtesting, almost everybody talks about it as if it were relevant only for trading strategies.

While backtesting is indeed centered around the strategy, once you have a trading plan, you must also backtest the plan at the same time. At a minimum, you must observe your money management rules. But, again, make one change at a time. If you bumped up your risk level, keep everything else intact for that testing round. To begin, note the general parameters of each trade. In MetaTrader, you can access this information by looking at the open position window or clicking the account history tab for already closed trades.

Next, add two screenshots of the trade. Ideally, you will take a photo right after you open the position, and another photo right after you close it. Feel free to write notes on the photos if needed. The following step is to explain the signal that made you open the trade. The signal is defined in the strategy; you just name it here. The same goes for the exit signal. Finally, add some comments. How did you feel before opening the trade, while the trade was open, and after the trade was closed?

Answer these questions and add any other information you find important. By reviewing your trading journal every week or month depending on how frequently you trade , you can spot recurring blunders and take the necessary steps to correct them. In addition, it is a great opportunity to monitor your trading plan. If you generally do everything correctly, but your results start to significantly diverge from those of the backtesting data, it might be time to revise your plan.

However, you must think smart and make adjustments. It might reveal that most losses happen because a price swing takes you out of the market. In that case, you can keep wider stops. Or it might reveal that one specific technique is producing the bad trades. Then, you can either eliminate it or try to make some optimizations. This guide lays out an exact process that you can follow step by step. It is based on a model that has already been proven to generate results for billion-dollar companies.

There will be moments when the process gets grueling. We all know how important it is to have a solid forex trading plan. But how do you get started? How to Create a Forex Trading Plan There are two options: The first option is that you simply take a piece of paper and start to note everything you find important.

Needless to say, this is not the best approach. How to Develop a Forex Trading Strategy That Works [Step by Step]. Want the inside scoop? JOIN THE COMMUNITY. Subscribe to get Forex education materials delivered to your inbox once a week.

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To get the most benefit from this guide, make sure to read all the steps carefully and in order. When the trade goes the wrong way or hits a profit target , they exit. If the result is worse than expected, ask yourself what you could have done better. If you use the same risk percentage on each position, your aggregate risk will be the number of open trades. Tactics are how you go about executing that strategy. Always review and adjust your guide in accordance with the market.

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