One of the most important pieces of forex information that you must have if you are going to have any chance of making money with forex trading, is how to set up your trading plan. Having a good solid plan that you can stick to, will make all the difference between profit and loss for many people.

Remember that the majority of people starting out in forex trading lose money, so it is vital to do everything you can to make sure that you are one of the successful ones. Having a plan will give you a good start over most people who just start trading with no idea of where they are going.

Having a profitable system is important of course but there are many of those out there. Most people think that the system is the only thing that matters and spend all of their time searching for the perfect system that is guaranteed to make money for anybody. But no such system exists. Although there are a lot of good systems, no system will be successful without a trading plan that is tailored to the individual trader.

This means that you need to work out your plan for yourself. Do not be alarmed however because it is quite simple. Your plan just needs to include three things:

1. Position size

This can be expressed in the number of lots that you will take on each trade. It may vary according to the strength of your signals or it may be the same for every trade, but it should be clearly set out. Do not vary your position size according to intuition, and do not vary it according to whether your previous trade was successful or not.

When you are deciding on your position size, you should also consider your leverage and what percentage of your total funds will be committed to a trade. This is part of your risk management strategy and it is important forex information that you should always have at your fingertips.

2. Stop loss

Your plan should include a stop loss, expressed in terms of pips. Again you should consider the risk that you are taking as a percentage of your overall funds. In most cases you could aim for a risk of around 2% per trade. However, with some systems or if you have a very low starting fund, you may want to go higher than that to avoid your stop loss being triggered too often. Just be aware that if you do that, you have a greater risk of going bust.

3. Profit level

You should also set the exit point for a successful trade, i.e. how many pips you are aiming to make. If you do not set this you will often be tempted to hold out as long as possible, hoping that the trend will continue your way. Often times you will be caught out by a sudden reversal and a profitable trade could be turned into a loss. So it is very important to decide ahead of time how much profit you will take.

Once you have your plan, it is important to keep to it consistently. Avoid the temptation to trade when the signals are not quite right, or to follow your gut feelings in anything, at least until you have many years’ experience of the market. Also, reduce distractions while you are trading. This will help you to avoid making stupid mistakes and keep you concentrated so that you can make the best of all of the forex information that you have learned.

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Filed under: Forex Strategies

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