The first thing you need to do when developing a forex trading plan is to try to figure out who you are as a trader, which involves a process of honest self-reflection.
It’s important to do this, because you will be the only person using the trading plan, so it is important to know just who you are tailoring it to. This process will reveal your trader profile – who you are as a trader – and this will define the method that suits your personality. If you were to adopt strategies, methods, and systems that aren’t compatible with your profile, your chances of success would be significantly reduced.
Naturally, most traders will want to jump straight into creating or finding trading strategies and systems, but they are unlikely to be able to tell which ones match their own situation unless they spend some time in self-examination first.
So, before you start placing trade orders, you need to ask yourself some questions that will inform your trading plan – and take a note of the answers. By writing down the answers to these questions, you can use them later to remind you to stick to the plan and remind you of your planned intentions.
Motivation and Goal Setting
The first question you need to ask yourself is “What is my motivation for being a trader?”. Not everyone trades just to make money, although this is an obvious fringe benefit to becoming good at it. Some do it mainly for the thrill, while others see it as a challenge to themselves.
This is an important question to ask, because forex traders who aren’t serious about or committed to trading will soon be found out by the market. And those that are need to be aware of why they are doing it, so that they can tailor their trading plan to suit. For instance, thrill-seeking and the search for consistent profits don’t tend to go well together. While you might enjoy the thrill of taking a big position in a risky trade, you won’t enjoy it if the trade backfires and cleans out your account. Put it this way, there are much cheaper ways to indulge thrill-seeking behaviour.
The next question you should ask is “What are you aiming to achieve by trading?”. In many cases, a certain amount of profit, either in terms of currency or a percentage return over a unit of time, will be the goal. For instance, you could set the goal of making $1,000 per month, or a 1% return every week. Or, it could be that you want to make enough money to buy a house, or go on holiday twice a year.
Whatever your goals, it’s much better to be specific, rather than merely saying that you would like to be rich. Other examples of suitable goals include being up by 50% by the end of the year, doubling your account in six months, or simply avoiding mistakes. This will help you to decide what you really want, and enable you to monitor your progress to see if you are improving or not.