Creating a Trading Plan – Part 2

In the past, we have published  and  trader psychology. The first article was about what type of trader you can be. We wrote that you should take a personality test to see where you stand on the continuum from impulsive to conservative. In the second article, we introduced some forex trading strategies to readers, which explained which one is best suited for each type of forex trading psychology.

What matters is not how many trades you win, but how much you profit

In this article, we will examine the next logical step in creating a forex trading plan – applying a trading strategy. This is a very important, if not the most important, part of forex trading. One of Soros George’s most famous quotes is, “What matters is not whether you’re right or wrong, but how much money you make if you’re right and how much you lose if you’re wrong”. These are the wise words of a successful forex trader / speculator. He is a family name in forex.

These words came to mind when he decided to sell the Australian dollar against the US dollar about three years ago when this pair traded around 1.05. His strategy was fundamental; predicted a decline in commodity prices and a tightening of monetary policy by the Fed. Two years later, the AUD / USD found itself about 35 cents lower, and the news was that it was earning more than $ 1 billion on that one trade.

As we know, forex strategy is important and it is okay that we sometimes make mistakes, but the most important thing in trading is to implement the strategy. If you apply correctly, your winnings will be higher and your losses will be smaller. But how can you implement your forex strategy in the best possible way? Here are some tips:

The first step is the biggest – One of the biggest reasons for a loss in forex is that you hesitate to pull the trigger when your forex strategy indicates that you need to open a forex position. If you look at the EUR / USD weekly chart below, the 100 moving average (MA) marked in green clearly rejects the price at the black arrow. Both the stochastic and the relative strength index (RSI) were overshadowed, and the candle of the week ended up like a hammer upside down, which is likely to follow a possible trend reversal.

All these indicators show that the EUR / USD would fall. In addition, the area between 1.15-1.17 has often provided resistance over the course of a year. As you can see, over the next three weeks, the price hovered around 500 pips. This is now a 500 pip loss and your forex account would have been 500 seeds higher if you had made this trade. In addition, forex traders tend to chase the price and come in late when they miss a good opportunity because they are disappointing, so they end up selling near the bottom or buying near the top. This would obviously result in a loss. So if you see a perfect setting according to your forex strategy, don’t hesitate for too long.

All indicators were down four weeks ago

Build Risk Free Trading – Risk Free ?! How can forex trading be risk free? Well, a forex trade may not be risk-free when you open it, but it can develop into a risk-free experience. Taking the EUR / USD example again, imagine that you opened an open forex position at 100 MA around 1.1610 above 1.1730 (the August peak of the previous year). Now that the week was over, the price was 1.14, 200 pips lower, and the weekly candle closed like a reverse hammer.

Currently, he is very sure that the price will remain lower in the coming weeks. You can now move the stop loss to payback or even 1.1510. This means you win 100 pips, even if the trend reversal scenario does not materialize. So creating a risk-free forex position is an important part of your forex strategy. But you should apply caution, if the position is 5-10 core gain, then the stop loss loss can not recoup. You have to be patient and wait until the price moves at least 50 seeds from the point of entry. You can then move the stop loss to recoup and put currency trading in a risk-free position.

Placing Winners – Sometimes the direction is very clear. Take the EUR / USD pairs, for example. It was quite clear that the price would not be much longer above the green MA 100 MA. So suppose you started open forex trading at 1.16. Then by the end of the day, the price dropped below 1.15 again. At this point, the chance that the price will continue to fall by about 80%.

So, what do you do for a living? You open another sales position that is the same size as the first. As you can see from the daily chart below, the price moved down in the following days, closing the week at 1.14. By then, the chances of the price falling further in the coming weeks will increase even more. As mentioned above, the weekly chart closed upside down like a hammer and the indicators were overbought. So you open another sell position again and the stop loss pays off for each position – then the price can move down to record some profit. As György Soros said: “how much do you earn if the trade goes in your favor, you make a profit”, so in such cases, when the direction is clear, you get the most out of it. Do not hesitate… just use this method.

It was clear that the price was moving south when the daily candle formed a hammer upside down

Loser – We know that your forex strategy is not always going in the right direction. Even if all the indicators point in the same direction, something can happen in the forex market that will change everything – and the perfect setting will fail. The trick is to recognize failure and accept loss.

When you first plan your trading, you choose to take profit levels according to your strategy. When I opened forex trading in EUR / USD near 1.16, I put the stop loss at 1.1650, about 30 pips above 100 MA. I did this because the indicator I chose for my strategy was based on this MA. I saw 100 MA as a line of sand; as soon as you let go, there is no other resistance nearby that can stop the upward trend. Luckily the price went in my direction, but if I didn’t accept the 50 pip loss. Some traders move the stop loss farther and farther and lose their entire account. You can’t hope for miracles to happen in forex and turn the trade to your advantage. If your strategy shows the right level of stop loss, insist we can’t win every single trade!

Forex strategy is very important, you cannot trade forex without strategy, just as you cannot go to war without a plan. But often the implementation of a strategy is more important than the strategy itself. In fact, strategies often work fine and are poorly implemented by forex traders. So, if you want to be successful in forex, you need to apply your strategy correctly, respect stop losses, add to winning trades, create risk-free positions where possible, and of course step in when your strategy instructs you to do so.