The only way to be a profitable trader is to develop and
consistently follow a system. In addition you need to record every trade
that you make, so that you can build up a history of trades to
understand why you are profitable or not.
It has been shown time and time again that if you write down your goals/targets/plans then you have a far better chance of succeeding. Your FOREX trading plan should include the following:
· How much money will be in your trading pot?
· How much money will you risk on each trade?
· What time frame will you be trading?
· What is your entry criteria for a trade?
· What will be your stop loss?
· What will be your profit and when should you exit the trade?
The market does not behave the same way in all the time. There are moments when it will be trending upwards or downwards, and times when it is consolidating. Any trading system must be designed to handle all market conditions or to be only used in the market conditions that it is designed for.
If a trader does not use a plan then they are subject to their emotions and the reactions of the market. They are much more likely to lose money in this case. Traders driven by their emotions will then do anything to win their money back and so increase their positions and risk. They chase their loses and will almost certainly lose more money. A vicious spiral kicks in and soon all their money has gone.
One of the most common mistakes that beginners make is opening and account and trade straight away with their money. This is a very bad idea as you need time to practice and develop trading techniques just like any other job. Fortunately the FOREX brokers provide practice accounts where you can develop your techniques without risking any of your money.
As shown above, a FOREX trading plan has to include elements of money management as well as the entry and exit strategy as well. Each of these building blocks is just as important as the other and provide the trader with a profitable and safe trading strategy.
Once you have developed a trading plan then there is a temptation to back test the strategy on historical data. Indeed many trading platform provide this facility to back test your strategies. However if you test the strategy and fine tune it to work better against this back data then there is a danger of "curve fitting". The problem is the future movements of the market can be quite different from the past even if it has memory. So always make sure that you test your systems against future data as well. You must paper trade the system for 2-3 months to ensure that it is working.
Once you have achieved profitability with future data on a practice account then you are ready to use real money. So at the beginning trade with very small amounts e.g. use micro lots, because broker behaviour with practice accounts is different from real accounts.
To summarise then the only way to succeed in trading is to have a trading plan. Once you have the plan then you need to execute it in a consistent manner. You must record every trade that you make including the reasons why you made that trade. Only then can you measure your profitability and understand what changes you have to make to improve.
It has been shown time and time again that if you write down your goals/targets/plans then you have a far better chance of succeeding. Your FOREX trading plan should include the following:
· How much money will be in your trading pot?
· How much money will you risk on each trade?
· What time frame will you be trading?
· What is your entry criteria for a trade?
· What will be your stop loss?
· What will be your profit and when should you exit the trade?
The market does not behave the same way in all the time. There are moments when it will be trending upwards or downwards, and times when it is consolidating. Any trading system must be designed to handle all market conditions or to be only used in the market conditions that it is designed for.
If a trader does not use a plan then they are subject to their emotions and the reactions of the market. They are much more likely to lose money in this case. Traders driven by their emotions will then do anything to win their money back and so increase their positions and risk. They chase their loses and will almost certainly lose more money. A vicious spiral kicks in and soon all their money has gone.
One of the most common mistakes that beginners make is opening and account and trade straight away with their money. This is a very bad idea as you need time to practice and develop trading techniques just like any other job. Fortunately the FOREX brokers provide practice accounts where you can develop your techniques without risking any of your money.
As shown above, a FOREX trading plan has to include elements of money management as well as the entry and exit strategy as well. Each of these building blocks is just as important as the other and provide the trader with a profitable and safe trading strategy.
Once you have developed a trading plan then there is a temptation to back test the strategy on historical data. Indeed many trading platform provide this facility to back test your strategies. However if you test the strategy and fine tune it to work better against this back data then there is a danger of "curve fitting". The problem is the future movements of the market can be quite different from the past even if it has memory. So always make sure that you test your systems against future data as well. You must paper trade the system for 2-3 months to ensure that it is working.
Once you have achieved profitability with future data on a practice account then you are ready to use real money. So at the beginning trade with very small amounts e.g. use micro lots, because broker behaviour with practice accounts is different from real accounts.
To summarise then the only way to succeed in trading is to have a trading plan. Once you have the plan then you need to execute it in a consistent manner. You must record every trade that you make including the reasons why you made that trade. Only then can you measure your profitability and understand what changes you have to make to improve.
Want to learn how to trade FOREX safely and profitably? Come and visit my website at http://www.firststepsinforex.com and I will send you a FREE manual and videos to get you started!
Article Source:
http://EzineArticles.com/?expert=Patrick_Cheesman
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