How many people can claim that they are able to make consistent profits when they trade Forex? Of all the Forex traders in the world only 5%can make it as traders.
This statistics is shocking but if you have been reading up on the Forex markets, you will understand that there are some people who can make it and many that fail.
To make money in Forex there are some things that you as a trader will require.
• Trading Plan
• Trading system
• Money Management plan
• Well funded account
• Spare funds
• DISCIPLINE
• Experience
In this article and the next few articles we will cover the above points in greater detail.
Let us explore in detail how a trading plan is useful for you a trader to make profits consistently when you trade Forex.
A trading plan is the start of all trading activity. A well-formed trading plan comprises of these elements:
1. Profit objective. How much money do you want to make, there are some plans that I have seen that tell you to let your profit run when there is a chance. My view is that trading is like a business. Would you rather have a lifetime customer that comes back daily or would you sell one item and then hope another rich customer comes along? You might make big dollars each time you do a sale, but compared to the power of regular compounding these "big dollars" are nothing at all.
2. Established risk factors. This is really part of money management; then again money management should be the basis when you form your trading plans. When you have established the risks you can take, this protects your current investment. Now that you know what your risk is, each trade you do will give you the assurance that regardless of the outcome (profit or loss) you will have established a mechanical system. A mechanical system will give to you more successes in regular long term trading as it removes the human emotive state thereby reducing human error. (I cover more on this in my free ebook)
3. A moving stop loss. This is another part of the plan can't be missed out. Ok so you say you got a stop loss level set. But do you know that within certain parameters you can and should move your stop. Some examples are when you have set your primary stop at the resistance level and the price is moving closer to your trading stop. Now the trend is a down trend and that this is a news related price spike. So you can shift your stop loss 5 pips. For me, depending on the time frame I trade in, the amount of pips I shift my stop loss will range from 5 to 10 pips. But a word of caution here, you have to be absolutely sure that it is a price spike caused by news and that the trend is strong. If not do not shift your stop loss at all. Accept your defeat at this trade then move on to win a few more!
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