Many people have turned to forex trading in the last couple of years in the hope of earning some extra money, and possibly with the hope of getting seriously rich as well. However, it is tough to make money from forex trading which is why you should always approach it with a solid trading plan in place.
If you are going to make long-term profits, then you need to take it seriously, which means having a well-thought-out plan of attack. This all starts with the trading system you plan on using.
Before you even think about trading with real money, you need to do lots and lots of testing and experiment with various technical indicators to find a system that’s going to make your money on a consistent basis. It doesn’t have to be perfect, and indeed a perfect system doesn’t even exist, but it should have the ability to grow your account in the long run.
It may only have a success rate of 40-50%, but this can be more than enough to generate some decent profits. For instance, if you use a stop loss of 20 points and target 60 points per trade, then a win ratio of 40-50% would generate some very healthy returns.
Some other key components of a forex trading plan include discipline and money management. Let’s start with discipline first of all because if you’re going to become a profitable trader, then you need to create a productive system and you need to have the discipline to stick to this system. Winning traders accept that losing trades are a part of the game, but the traders who end up losing money are those that have difficulty accepting losses and subsequently start chasing losses, just like a lot of gamblers do.
Money management is important too because even if you have a profitable system, you should still only risk a small percentage of your capital on any one trade. Your goal should be to grow your account steadily over time and by only risking say 2 or 3% per trade you can build your account very nicely as your capital starts to grow.
So to sum up, if you’re serious about becoming a successful forex trader you should create, and stick to a solid trading plan. This should incorporate a profitable trading system, a disciplined approach to trading, and sound money management principles.
Forex Trading Plan