Unless You Do This, You Are Not Learning To Trade Forex Correctly

When you are learning to trade forex you must learn how to create a trading plan. It is an essential part of trading forex. Yet most traders don't. Which is why over 90% lose money in forex.

Why develop a trading plan?
Because the worst time to make a decision is in the middle of the trade. If you are learning to trade forex, you need to understand that emotions can sabotage your trades. A trading plan allows you to decide what your trading parameters are going to be without all the emotion you get when you are in the middle of a trade.

To create a trading plan, there are some questions you need to ask yourself.

What type of trader are you?
To find your trading style you need to figure out some things about yourself and how you are going to be trading. For those learning to trade forex, there are basically three types of traders: Short Term, Medium Term (or Mid Term), or Long Term

Short Term
- This is High- Frequency Day Trading.
- Short term trading in currency is much more frequent that in stocks.
- Positions are held for anywhere from a few seconds to at most an hour.
- Traders profit by opening and closing positions after gaining just a few pips sometimes 1 or 2 pips.

Medium Term
- Also called Directional Trading or Swing Trading.
- Medium Term positions are typically in trades for a few minutes to a few hours, sometimes a day.
- Typically have well defined trade entry and exit strategies focusing on making money from more sizeable movements than Short Term Traders.

Long Term
- Long Term Traders typically hold positions for weeks and months.
- Looking to profit on long term movements in a trade- want to see major price trends.
- It's a good idea to take some profits from profitable positions, yet still maintain a core position in that trade (this means you sell some of your position and keep a portion)

How much time do you plan to spend researching and watching your trades?
Be realistic as to how much time you can spend doing this. Remember to schedule family time, leisure time, and if you have a job your boss may not want you to watch the market or do research at work.

Three Key Components of Trading Plan:

1. Determining position size: Decide what size position will you take for each trade.

2. Trade Entry Point: Decide exactly where will you try to open the position.

3. Trade Exit Point: Determine your point you will take your profit and close the trade and your stop loss point.

Position Size
Decide how much of your trading account you want to use. Don't be greedy. Begin with smaller positions and work your way up. Better to make mistakes with a little money than a lot.

Write down what size positions you want to take.

Entry Point
- Study the charts. It may be better to trade ranges rather than trying to catch the next big move.
- Understand how different markets and different times of the day affect the currency you are interested in. Certain times of the day offer more movement than other times.
- Write down the criteria you want for an entry point.

Exit Point
- It is vital you determine where you want your exit points to be BEFORE you get into a trade BEFORE the emotion sets in.
- Decide how much profit you want from this trade- write down the number of pips
- Decide at what point you need to get out of a losing trade- write down how many pips below your entry, you will exit.

Put it together
- Take these three key components and put your answers on a piece of paper.
- Add anything else you want to be sure the trade has in order for you to enter.
- Keep track of your trades, record the progress and study them. Then adjust your trading plan.

Stick to the Plan!
Above all, stick to your trading plan. You can always make adjustments after the trade is over and you've analyzed everything. Focus on this when you are learning to trade forex and soon you will find more and more success with your trades.

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