Writing a Forex Trading Plan

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I must admit, I became a successful trader without a trading plan. I also ran this site for 2 years without a plan. And in my life I plan next to nothing. I always thought that plans were useless and that I did not need them….. I was wrong!

Your Forex journey will be much easier and much more successful if you have a proper plan in place. However, very few websites tell people how to structure a trading plan. And no website I know of actually shows you an example of a REAL trading plan.

The fact is I could give you a 1,000 page essay on what a trading plan is and how to write one. However, wouldn’t it be so much easier if I just show you actual plan?

A small disclaimer first though. As most of you know I am a self-taught trader I did not learn Forex from a book. So this is a NickB type Forex trading plan it’s not something you will learn in a book.

First let’s go through what’s you need in a trading plan the check out this sample plan (opens in new window) to see how it all comes together.

My current plan is written on paper as opposed to typed on PC. There are many conflicting studies on whether people retain more knowledge typing or writing. Personally I feel that I retain much more knowledge when I write something. You should try writing your trading plan. It is more work but at the end of the day if it helps you retain knowledge like it helps me IT’S WORTH IT!

Step 1: Write a quick outline of your trading method/system

No surprise here, your trading method is what it’s all about. Without the foundation of a good method/system trading becomes gambling.

The first part of your trading plan should have a brief outline of your trading methods/system. It should contain:

  • The pair(s) you trade.
  • The timeframe(s) you trade.
  • Types of price action analysis (if you use it) i.e. Candlestick analysis, trend line analysis.
  • Indicators (if you use them) i.e. MACD, RSI.

Step 2: Write a quick outline of your Money Management Plan

Here you would put a brief summary of your money management plan. In my previous post I showed you how to right a money management plan. In your trading plan you should just put in:

  • Your money management goals.
  • Your money management rules.
  • The table with your pip goals.

Step 3: Add your trading goals

Here you would put your goals. And no “I want to be rich” is not a proper goal. The best way to figure out your goals is to ask yourself “what do I want to get out of trading?”. If I ask a newbie trader what they want to get out of trading most would say something like…

“Freedom, I want to quit my 9 to 5 job and replace it with Forex trading.”

Now that is a pretty good goal and it is definitely achievable.

With goals you can aim for the sky and be disappointed when you don’t get there. Meaning that, you can throw in a stupid goal like “I want to be a millionaire in 12 months” and be disappointed when you aren’t. It is better to throw in a logical, achievable and simple goal.

When I was a newbie my list of goals would have been something like this:

  1. Get disciplined, taking random trades without analysis is stupid. Analyze all your trades beforehand and think things through before opening a trade.
  2. Get to the point at which you can take a trade without stressing over its outcome.
  3. Make enough money consistently to move out of mum and dad’s house.

The goals are logical, achievable, simple and to the point. 5 years later trading has made me a millionaire –to clarify trading alone did not make me a millionaire, it was the smart investing of the money I earned from trading that did that-.

Step 4: Add a list of your weaknesses

We all have weaknesses. For example I am too smart and too good looking hahhaha…… but seriously, I tend to be impulsive and I always want to take on more work than I can handle.

I put my weaknesses in my plan to constantly remind me about them. Knowing my weaknesses helps me combat them. You will be surprised how quickly you forget your weaknesses if you don’t write them into your plan.

Your weaknesses are what will stop you from achieving the goals above. So write down the weaknesses, remember them and fight them.

Step 5: Add some rules

So you have your goals and your weaknesses.

Now it is time to throw in some rules that will help you combat those weaknesses and achieve those goals! The rules are obviously specific to you and your trading so I cannot tell you them. However, an example that has stayed constant in my trading plan for years is over trading. One of my weaknesses is that when I make pips I want more and more. So I keep taking more trades and eventually I mess it all up. So I implemented a rule long ago that fixed that problem:

Rule 1 – Target a maximum of 100 pips per week. If you’re in an open trade and it goes over the 100 pip target keep it open and trade it as you would normally. However once that trade is closed trading is over for the week. Even if you get a 100 pip trade in your first hour of trading Monday morning take the rest of the week off.

I have used this rule in my trading for years and it has helped tremendously.

Step 6: Write a basic routine
Here you would lay out your trading routine. You could make this section 10 pages long if you wanted but mine is always just a few bullet points. All you need to do is put in basic outline of an optimal trading routine. Without one you might find that you have no direction and change things randomly. This helps remind you of your course and follow it. Ideally you would want to write something like this.

  1. My trading week starts Sunday before market open. I should spend about one hour doing all my analysis and planning my trading for the coming week. I should also set relevant alarms.
  2. Monday I should be alert for trades but I should stay cautious as Mondays can be a little tough to trade.
  3. Tuesday-Thursday I should be trading full time and watching the charts closely. This is optimal trading time.
  4. Friday is a half day. I should not trade the last 12-16 hours of Friday. The closing of positions from trades all over the world leads to a often chaotic and choppy market.

You’re Done

Your trading plan is complete. This is really all that is needed in a trading plan. Sure you could make a 50 page long plan but do you really need that? This plan should not be more than two pages long. It is something you can print out, keep by your desk and read a few times a week.

In trading keeping things simple is the best course of actions. So keep your plan simple.

Check out this sample plan (opens in new window) to see how it all comes together.

Write your plan, print it, read it daily…….. and become a Forex Ninja!