To be successful in forex trading, you must develop and refine disciplined trading strategies.
Regardless of the type of trader you are, you will need to sculpt an organized forex trading strategy.
A solid trading strategy is what marks the difference between making money and consistently losing money in forex trading.
What is Your Forex Trading Plan?
A forex trading plan is an organized approach to entering, executing and exiting trades in the market. Do you have one drawn out?
Here are the 3 pillars that you should include in your forex trading strategy.
- Position sizing: Position sizing is something that you need to plan for before you enter into a trade. How large will your position be? By carefully planning your position size, you will always know how much money you have at stake.
- Where to enter the market: One of the biggest blunders that forex traders in Kenya (and around the world) is to enter trades blindly. The MT4, with its ease of use, is very tempting. However, if you love your money and sanity, you will not click on any of those buttons just anyhow. You need to determine exactly where you are going to enter the market and what you will do in case the market does not reach your predetermined entry point.
- Setting stop loss and take profit orders: The third pillar to developing a solid forex trading strategy is to understand how and when to exit your open positions, both when you are winning (take profit) and when you are losing (stop-loss).
If you muster these 3 things, you will consistently make profits in the market. You will minimize your losses and enjoy watching every trade that you make. The opposite is also true, ignore these 3 pillars of a solid trading strategy at your own peril.
These three pillars are what stands between you making profits or losing money on the forex market. It is unfortunate that many beginner and experienced forex traders in Kenya open positions on the market without paying heed to any of these.
Do you have a game plan? Is it written down? Can you explain to a 8-year old what signals you will use to enter a trade, what position you will hold and where you will place your stop loss and take profit orders? If you find yourself fumbling for the words, you need to go back to the drawing board. Refine your trading strategy.
Trading without a plan is like driving with a blindfold across your eyes. You might be able to fumble and start the ignition, but will you keep the vehicle straight on the road? Will you be able to park it?
Don’t break any of the forex trading rules, or the market will break you.
Following Your Forex Trading Strategy
It is all good to have a solid trading strategy developed, but what ultimately determines your profitability is whether you follow the strategy. No matter how good you think your trading strategy is, it won’t work if you do not follow it.
Your emotions are one of the greatest threats to your trading strategies. At time, emotions will bubble, making you lose focus of your strategy. At other times an unexpected piece of market news will surface, making you want to abandon your trading strategy. Whenever you abandon your trading strategy, you become as good as the guy who entered into the forex market without any plan.
Developing a solid trading strategy, and then sticking to it, are two of the most important skills in forex trading. If I was to name one characteristic of a successful forex trader, it wouldn’t be killer technical analysis skills, aggressiveness or gut instincts. It would be a well-refined trading discipline.
Forex traders who lay down a solid trading strategy, and then follow it are the ones that survive on market from one season to another.
Before you do anything else today, make sure you have drawn out a trading strategy. In the next lesson, I will be showing you how to distance your emotions from your trades.