It is common knowledge that a new Forex trader fails 80% of the time. This is because many beginners start trading without a clear plan. A preconceived plan is crucial when trading. Trading without a plan is like going to war without an attack and a defense plan. Before you embark on a battle, assess your ability, strengths, and weaknesses. The same logic applies to Forex – prepare a plan that helps you base your trading on your strongest traits and avoid the weak ones.
There are many people who claim to have developed a perfect plan; All you need is to give them your money and you will have access to this money making machine. It is true that no one knows you, your mentality, your capacity and your strengths and weaknesses better than you. This is why only you can make the best trading plan yourself. Building a trading plan involves several steps that we will explain one by one below. It is important to trade as simply as possible, so that the plan must not be complicated either. As Einstein said – if you understand the problem, you can explain it in simple words.
Your available funds
Before you start trading, you should decide how much you want to risk in one trade. A professional retailer or institutional does not risk more than 2-3% of his account in one store. I do the same and I suggest you follow the same rule. No matter how small your account is, if you want to do that business in the long run, you should stick to it, the rewards will come in the end.
Let’s say you start with a very small account of $ 2,000. You want to risk 3% of your account for each trade; your stop losses are 60 pips and your target profit is 40 pips. So how do you calculate the lot size? It’s easy, 3% of $ 2,000 is $ 60, so you risk $ 60 for 60 pips. That’s $ 1 per pip, and since 1 mini lot is about $ 1 per pip, your store is 1 mini lot or $ 10,000. This gives you 1/5 of the lever, which is very reasonable.
Let’s be conservative and say you use a profit / loss ratio of 1 / 1.5. At the end of the day, in the end you only have one net winning turnover. This means that you make 2% profit per day, or realistically $ 40, which may not seem like much to some. But don’t let that first impression discourage you, it’s a 10% profit in a week; therefore your bill is 10% higher.
We know that on forex, profits increase exponentially, so in the second week you increase the lot size by 10%, in the third week to 11%, in the fourth week to 12% and so on. In about 7 weeks, your bill will double, and in 12 weeks it will be three times larger than the initial one. Until then, you can change your money strategy. You can withdraw half of your monthly earnings and leave the other half to keep your account growing.
Your free time to shop
The next step is to differentiate how much time you have to trade. Professional traders whose job it is to trade are not constantly standing in front of their screen. They take 30-minute breaks every 2-3 hours and do not work in shifts longer than 8 hours, otherwise the judgment becomes weakened and we know that it is of the utmost importance to be clear-headed when trading. Many people have a full-time job, so they cannot continuously monitor the market. Even if you don’t work full time, you may have other preoccupations and it is not advisable to stare at maps like a zombie for 12-14 hours.
You need to know what your working hours will be like, whether it’s 30 minutes around noon, during the afternoon, or during the day if you’re not working. Statistics show that almost 40% of people trade while traveling to work in the morning or during a lunch break. The best trading strategy for them would be scalping. Our short-term signals here at FXmarketleaders offer good opportunities for this group of traders.
There are merchants who have time to look at the tickets only when they return home in the evening. At this time of day the market activity is very low. They have a better chance if they trade longer time frames, such as daily or four-hour. These are swing traders and they can use our long-term signals in addition to their own analysis. The second group are everyday traders who have access to maps and markets at any time of the day. This type of trader can use any time frame in which they are most comfortable, and can monitor all our signals.
A trading plan is a very important aspect of trading, so we want to work it out thoroughly. Therefore, this article will be almost twice as long as our other strategies, so we divide it into two parts. It will be easier for you to digest the data and build your own plan step by step. We will complete the second part of this article next week, and in the meantime, start working on your trading plan.