The Trader’s Plan
“Good fortune is what happens when opportunity meets planning.”
“Reduce your plan to writing. The moment you complete this, you will have definitely given concrete form to the intangible desire.”
Finding quotes exuding the benefits of planning is not hard to do. Above are just two of the more common, reverent quotes exalting the benefits of planning. Or there is this one:
“He who fails to plan, plans to fail.”
However you want to look at it, or whomever you may want to listen to, the benefits of planning can be profound; particularly when embarking on a difficult activity. It can give form to the process that, hopefully, will help us achieve our goals.
In this article, we will look at the ‘Trader’s Plan,’ and many of the elements that traders look at to outline their plans.
The Trader’s Plan can differ greatly between traders, often around personal preferences and maybe even more importantly - goals. For this reason, I choose to start my trading plan with my daily goal. This is the first line in my plan – and functions as a reminder of what it is that I want to accomplish in markets on a daily basis. I color and keep this line ‘green,’ so that it sticks out on my plan. At quick glance of the plan, the green goal sticks out – further reminding me of what my job for the day is.
New traders will often ask how many pips they should target when first getting started out. I recommend that new traders on the demo should look to be profitable, setting initial goals small and increasing as experience and comfort builds. Trading can be tough, and setting extremely lofty goals could end up becoming a discouraging element of the plan. Goals should be realistic, attainable, and worthwhile all at the same time. These can differ greatly from trader to trader; but realistic expectations are of extreme importance to the plan, and to the approach. This will often dictate the rest of the plan, so I start the plan with this line item of my daily goal in ‘Pips.’
When am I going to trade?
This is probably one of the most neglected parts of trading plans that I’ve seen. The FX Market is open 24 hours a day and many traders want to use this to their benefit. The fluid nature of price being traded around the clock is a compelling prospect for traders, particularly those such as myself that came from other markets such as equities or commodities; markets in which gap risk can greatly influence a trading approach. Since FX is open 24 hours a day, there are fewer gaps simply because the market doesn’t close as often as most equities, futures, and commodities markets.
An important element of note is that the various trading sessions can exhibit different ‘characteristics,’ around the way that prices move.
In the article “When is the Best Time of Day to Trade Forex?” by David Rodriguez and Tim Shea, they examine the ‘Tokyo,’ trading session.
David and Tim propose the thesis statement that movements in price can potentially be smaller during the Tokyo Trading session, and, as such, may be more accommodative for newer traders.
David and Tim first establish that average price moves of a target currency during the Tokyo Session (in this study David used EUR/USD) could be smaller than that of other trading sessions, or times of the day.
David and Tim’s research comes to the conclusion that range strategies, such as the RSI example used in their research, may be better served during the Tokyo Trading Session.
I would highly recommend this article to anyone unsure of how to build this part of their Trading Plan:
“When is the Best Time of Day to Trade Forex?” By David Rodriguez and Timothy Shea
How much am I going to risk per trade?
The next step in the trading plan is – in my opinion – the most important part of the plan. This is where a trader’s risk parameters are set.
There isn’t one answer to this question that is, across-the-board, better than another. Once again, this part of the plan should be built around an individual trader’s goals, objectives, and risk tolerances.
For anyone looking for some help in setting this part of the plan, in the module for Money Management in the On-Demand Video Course, we propose a max of 5% at risk at any one point in time.
Traders also need to determine if that amount at risk is going to be on one trade, or many. If I risk 5% of my account on 5 ideas, that’s 25%. If I lose on all 5 of my ideas, I only have 75% of my account balance when I begin trading tomorrow.
I then need to make 33% just to get back to my previous break-even level!
Personally – I find that level of risk intolerable on a day-in and day-out basis as a trader. I want a maximum of 5% of my account at risk – across all of the ideas that I’m trading. That way, if I have an extremely bad day and lose on all of my trades I can come back with 95% of my account value tomorrow.
How much profit will I seek on each trade taken?
Once again, this part of the plan can differ greatly from trader to trader depending on trading style, risk characteristics, and goals.
Risk and Reward is extremely important to traders, and once again, Mr. David Rodriguez has accompanying evidence to help further illustrate this point.
In “What is the Number One Mistake Forex Traders Make?”
David and Tim arrive at the thesis statement that a minimum 1 to 1 ratio should always be used. This means that if I am risking 100 pips in a trade, I want to look for at least 100 pips as a gain. David continues, “for lower probability trades, such as trend trading strategies, a higher risk/reward ratio is recommended, such as 2:1, 3:1, or even 4:1.”
In the Money Management module of the On-Demand Video Course, we recommend a minimum of 2:1 or greater; meaning if I’m taking the same trade with 100 pips of risk as above, I’m looking for a minimum of 200 pips to the upside if I’m correct.
How am I going to enter trades?
This is one of the more simplistic parts of the trading plan, as this will often be dictated by the trading strategy (or strategies) itself. I want to make sure that I’ve written out the exact situation that I am looking for.
If I were using the ‘Model Strategy,’ that David and Tim had used in “When is the Best Time of Day to Trade Forex?”this section of the trading plan would read:
I’m looking to trade RSI crossovers between 2:00 PM EST and 6:00 AM EST
I want this to be as descriptive of the strategy as possible in this section.
How am I going to exit trades?
A natural extension of the previous section, this area should address each strategy being traded. For each strategy listed in ‘How am I going to enter trades,’ I want to have an exit planned.
Some exits may be: “I will close my trade when 2 times my initial risk level is met.” Others may be: “I will remove a part of the lot and move my stop to breakeven at a 50 pip gain, and I will then trail my stop on the remainder of the position by 30 pips until an oscillation takes me out of the trade.”
How am I going to manage my trade(s)?
Once again, this area is going to differ greatly between traders as this should be highly customized based on the previous sections of the trading plan. This can also be built around the specific strategies or market conditions being traded.
Trending moves can often continue for an extended period of time, meaning trailing stops may be more of a requisite option in trending/breakout markets than in ranging environments.
For traders looking for more information, I share my point of view in the article “In-Trade Management.”
I saved the best for last.
This is where I will build and manage my personal ‘rules,’ of my trading approach. If I find myself continually running into an issue or problem, the only rational thing to do is identify the issue and build a rule around it. That’s where my personal rules come into play.
These will differ greatly amongst traders, but as an idea, one of the rules that have existed on my plans for quite awhile:
“I will not throw good money after bad.”
This means that if I open a trade, and am losing – I will not add to that loss.
It also means that if I set my stop, and the trade moves against me – I will not, under any circumstances, ‘widen,’ the stop or give it more room in the hope of being right.
I noticed this deficiency in my trading quite awhile ago, built a rule around it, and have kept it as a reminder. I encourage you to notice what areas of trading are causing you difficulty, and address them in this section.
The Anatomy of the cryptocurrency market: The exceptions are always there; still, some features or factors (above basics) which makes the cryptocurrency so demanding in the CFD market are: Some Basic Keyword of the Cryptocurrency Market 1) Adaptive Scaling: Adaptive scaling indicates that virtual currencies are made with standards to ensure that they operate satisfactorily in different types of scales (including both small and large scales). Example of adaptive scaling: The famous Bitcoin is programmed such that it allows mining of bitcoin consecutively in approximately every ten minutes. The program or algorithm adapts itself after every two weeks or after every 2016 blocks to get harder and easier based on the time taken by those 2016 blocks to get mined. So, if it took only 13 days for the program to mine these 2016 blocks, then it means it is very easy to mine, so the difficulty rises. However, if the program takes 15 days to mine the 2016 block, it indicates that it is tough to mine, so the difficulty declines. Also, other methods are included in electronic coins to grant for adaptive scaling such as restricting the supply over a period (for creating scarcity) and declining the reward given on mining (because more coins are mined) 2) Cryptographic: The cryptocurrencies make use of the technique known as cryptography to manage the production of digital coins and to validate transactions. 3) Decentralised: A centralised authority (mainly government) controls the currencies being circulated in the market; thus, their production and creation can be in control of the third party. However, the transaction and creation of cryptocurrency are open sources, guided by computer code, and depends on peer-to-peer networks. No single entity can affect or control the currency fully. 4) Digital: A Physical object (for example, USD in earlier times was backed by gold and existing by paper money) defines the conventional form of currency. But, the crypto token is digital. These virtual coins are transferred digitally from one digital wallet or other and stored in the virtual wallets. No physical entity or object exists in it. 5) Open Sources: The cryptocurrency market is an open-source market. It means that the developer can make APIs without spending money on fees, and anyone can join or use the network. 6) Proof-of-work: Most cryptocurrency markets use a system known as a proof-of-work system. This system uses easy-to-verify and hard-to-compute computer-based puzzles, which limits the exploitation of virtual currency during the process of mining. Primarily, it is similar to solving the “captcha” for verification and requires high computing power. Important: Various other systems, such as proof-of-work and proof-of-stake, are also used. 7) Pseudonymity: The purchaser of cryptocurrency keeps its virtual coins in a digital wallet. This wallet is encrypted, and identification too stored at an encrypted address that a buyer has control over. This information is not attached to a specific person’s identity. The connection between a trader and its coins is not anonymous rather pseudonymous. It is because the ledgers are accessible to the public, and hence, they could be used to gather information about groups of traders present in the network. 8) Value: An efficient currency is known for the worth which it carries. For example, the United States greenback is used to indicate the real gold. The gold was limited and required work to refine and mine, so the processing and scarce volume directly gave value to the gold. Thus, this gave worth to the United States dollar. 9) Addition of value: Cryptocurrency market works concerning worth. In cryptocurrency, tokens (they are nothing more than openly agreed on account of ownership) are created or generated by miners. These miners are individuals who operate programs on techno specific hardware designed primarily to resolve proof-of-work problems. This effort behind mining provides these coins with value while the demand for them and deficiency of them leads to fluctuation in their value. The concept of effort providing value to currency is termed as “proof-of-stake” system. Another way for verification of coins is called proof-of-stake. Worth also comes when different transactions get added to the public ledger; thus, accounting for work in confirmation of the transaction block. Moreover, it also comes from factors including supply, demand and utility. Bottom Line The cryptocurrency market looks attractive after the article, isn’t it? So, if you are ready and thinking to invest in this market, then you can check out our other articles and blogs posted on our website JourneyForex.com There are articles for the beginners as well as professional traders to make their trading experience better and easy going.
What are fixed and variable spread spreads? Permanent/fixed spread means unchanged spread which never changes. And the number of pips in a fixed/fixed spread will depend on your broker. Variable spreads, on the other hand, mean that such spreads change and depend on the Forex market, that is, the amount of pips in a variable spread fluctuates between the purchase and sale price of a pair in a variable spread. The main differences between fixed and variable spreads are: Fixed/fixed spreads are usually much better and saved than variable spreads. Let us understand the difference between these two spreads with the help of an example- EURUSD pair for trading is fixed/fixed spread is 2-3pips or whatever your broker has, if that pair changes or fluctuates incredibly in fixed/fixed spread then any type of spread Will not change. On the other hand, for EUR / USD pair trading in variable spreads, the spreads are usually up to 1-4 pips and in volatile currency markets, the spreads are up to 8-10 pips. And the variable spread is low only when the movement, liquidity and transaction of the market are low. Spread selection: Most of the people who trade currencies, despite their doubts about the fixed spreads, feel or believe that they have a lot of savings by fixed/fixed spreads. For example, when a trader opens 100 trades at a variable spread (when the market is volatile), he opens trades at a spread rate of 1 pip in 20 trades, 2 pip in 40 trades and 8 pips in the last 40 trades. Then you have to pay its cost (spread) in variable spread (20 × 1 + + 40 × 2 + + 40 × 8) = 420 pips. On the other hand, if he did those trades at a fixed/fixed spread, he would have to pay a (cost) spread of 100 × 2 = 200 pips. Then he would have saved 220 pips. Also if the market is high volatility during trading at variable spreads, then the trader has to face huge losses. So for those who are new to Forex / Trade, fixed/fixed spreads are the best. Only when they become an experienced trader in the Forex market can they dare to trade in competitive variable spreads. Finally, everyone understands which spread is good for you, I would say permanent/specific spread. Because if you trade at a fixed/fixed spread, you do not have to take extra tension in the trade and the broker does not have to pay a huge share of the huge profit/loss of your trade. Now the decision is yours. Thanks.
In the process of currency trading, there will be a lot of losses. And the traders cannot deal with them all of the time. In fact, they may get disturbed with the condition of the business like that. It is not a good environment to manage the right kind of trading performance. In the system, the traders will have to maintain such a good performance with some of the most proper management of the system. It is good to think with the safety concern. Because there will be a lot of things which can be handled properly with that. We are talking about some good management of the business with the most proper handling power. Then there will also be some good thinking of the stop-loss and take-profit for the trades. Those two things are very much helpful for the trades. Actually, they help the traders to close the trades with the right kind of range with profits as well as losses. Even the trading platform will help the traders to maintain such a good job with that. Because the traders can set them to automatically close the trades. The risk and profit targets will helpFor the right safety precautions, all of the traders will have to sort out the right way to manage the setups. And the risk, as well as profit target, will be the right thing for them. Basically, the traders will be using them as a reference for the stop-loss and take-profit. So, it is necessary to be minimalist in the setup process. It is good for the right management of the trades. Or in the term of trading, we could call it proper position sizing. Think in the right way to minimize your losses. Until you have a good market analysis process ready with the tools and indicators like the Bollinger Bands, the investment, as well as the profit target, can be minimal. It is a good way for the traders to maintain the right composure for the currency trading business in Forex. Stop overtrading the marketOvertrading is one of the major cause for which the retail Singaporean traders are losing tons of money. Even after having access to the best SaxoForex trading account, they are not able to make a consistent profit. Instead of analyzing the lower time frame data, you need to focus on the daily time frame. Try to look at the longer picture of the market and you will understand how this market works. Be focus and trade the market with quality signals. Take the trading method in the account tooWith the right safety to the trade setups, we also have to think about the right trading methods. It will be working with the time for trading. Along with proper trading method, the right management of the trading schedules will have to be there. It is not that simple for the traders to maintain the right performance in the business. And getting some good income can wait for a while. Or we can say that the right management of the long term trading process will help the traders to make such a good income. Because the process of the trading will be depending on different markets. Then there will also be some good thinking with a calm and relaxed mind. So, everything seems to be right with the long term processes. Try to make your business right with the most proper planning for that. We all have to focus on the trading qualityAll of the time in the business, there will have to be some sort of proper management. We are talking about good handling ability of the trades. But the aim should not be on income. We all know that Forex is good with a proper interest in the trading quality. So try to make up your mind for that.