Writing a Forex Trading Plan

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!

:series:

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22 thoughts on “Writing a Forex Trading Plan
  1. FirstAs Dalila says in other thread “you already cover these subjects in the video course” so if Anonymous reads this, he/she will hopefully regret his/hers harsh words.SecondThough I have the videocourse I really enjoy what comes from your hand. You have a way to make things easy, understandable and it motivates me. These posts from you builds up the material that you by far have supplied this website with, which leads me to…ThirdAre you for real…???*lol* Really. You give and you give, and it´s all the real deal and very helpfull – for free!So a big THANK you and a happy new year – thanks for making my 2009 blissfull!!!

  2. Another great post Nick. I hope you post links to this post and the last one in the education section. Just putting it in the blog means it won’t be noticed after a couple of weeks and these are great essays. When people say go to Babypips to learn Forex (and I see you do post there)  you don’t get this kind of learning. You get all the standard stuff but not posts like this. Hats off I could run naked through the last two posts.

    1. @dallia:

      The problem is a handful of people say “great post” so I am left thinking most people find this stuff boring and don’t want it. I mean look 3 comment so far and it took me 8 hours to put this all together. Not sure if I should keep making these posts. Some posts here that take 30 min to put together get 50 or 60 comments.

      I am going to convert these

  3. Well, I do appreciate your effort Nick, I might not be the president of the U.S. but you are opening a door for me with the tools you are handing out. Remmember, you can take a horse to the river but you can not make him drink. Happy new year bro!

  4. Lack of comments possibly due to the date (New Years Eve). Numbers of responses to your other posts I think show our appreciation. But you do take on a heavy burden as you explained in your recent post. I will try to be one of your assistants in the near future. As a newbie I need a little more live experience. I have been in your shoes before in business (did it all myself- it aint easy). Hope you are feeling better.

  5. A simple and practical plan shown is better than a thousand words said. Reminds me of modern interactive teaching techniques: first I show you how to do it, then we do it together, then you do it…Great teaching, and thanks.

  6. Your efforts in detailing things like trading plans and money management methods are extremely valuable to anyone in a serious endeavour to make forex trading their life. I have done my own simple plans over the last year or so, and seeing posts like this confirms that I am not planning too much, and that I am planning correctly. It also helps to fill in the blanks where I think, “Am I missing something?”. For example just thinking about my weaknesses does allow me to set up another plan to work on voiding those weaknesses and try to eliminate as much of it as possible from creeping into my trading. Thanks as always for the great insight into the knowledge you have gained and methods you have developed over the years, you’re helping my dream come true. Have a great new year!

  7. Hi Nick
    I read all your posts and take action on them but I don’t necessarily respond to them all.
    I believe I’m not the only one so keep up the good work, we do read them and perhaps we should all show our appreciation more by responding

    Have a great New Year

  8. Hi Nick!

    I’ve been following you on your site for 2 years now. I read everything you write on the site. All your writing is only boring for overconfident people. You are making a difference for a lot of us noobs. I’m finally realizing where this is going…I have to really work with myself and my understanding of forex in order to become that profitable trader everyone wants to be. And you’re really helping me out a lot doing that!

    Thanks for your time (hope it’s not becoming a boring cliché for you)

    Steen

  9. Nick, this is one of the most motivational items I’ve encountered by far. I have gone through change after change in “my trading plan”. This is rock solid!!! It not only allows you to progress and trade smart but there’s a huge motivational factor. It almost makes you trade smart because in order to progress to the next lot size you have to achieve a solid profit level. I may have not worded that perfectly but the bottom line is you just gave me exactly what I’ve been looking for!
    Thank you very much, owe you a lot.
    Hickh

  10. Hi Nick

    Your posts are great; easy to understand, simply presented. This is the first time I have made a comment; normally I would be content to sit back and keep quiet, but I just have to say I think the whole site and especially your posts are so valuable in learning about forex. Your effort and dedication is much appreciated.
    Hugh W

  11. Hi Nick and all ,

    Just read this Trading Plan post now and thank you for the effort. It really helps. A LOT .

    Just wanted to tell you that even though you may not get that much comments and ‘thank you’ s , the posts( and the whole website) are still great for their educational content.

    And even though, (unfortunetly for me and congrats for those who made it) I may not be witty / original enough, or humourous enough to make it to Nick’s exclusive picked ones, I still feel privileged and lucky to be part of this website where the educational content ( for free ) is truely outstanding.

    Nick ( and the other contributors ) pls do keep up the good work and continue with your education / blogs. I pray that someday I will be confident enough to be still around and be able to contribute myself.

    Thanks again and a happy prosperous new year.

    Emanuel

  12. Hey Nick, this post is great stuff for newbies like me. While I would also like to share with all noobs other there that besides having a trading plan and money mgt plan, noobs need patience and discipline. Without which, none of the plans would be followed and they will be useless. I would recommend noobs to share their lessons learnt, their plans, their methods and all. This will enable all of us to learn and refine our trading tremendously. I like what you have been doing and I hope in the future I could also share and help to add useful content for noobs to help all to succeed. Meanwhile, do hang in there. Do let me know if you need any help to spread your ‘teachings’ in Singapore. Cheers.

  13. @ NickB:

    Hi Nick!

    Very good and useful post! (The post on the Money Management Plan is great too!)

    You are doing what nobody did before and you can see that many people are greatful for what you are doing.

    Don’t get discouraged by the fact that there are not a lot of people answering to this post. I assume it is most probably because it is the holidays season and a lot of people are out and having time with ther beloved ones.
    I am sure many people will come back next week, and the posts will climb in number!

    Just keep up the great stuff you’re doing, because it is really outstanding the knowledge you are sharing here, and we are all learning much more than we could dream of reading tons of books.

    Thank you for this and I wish you a wonderful Happy New Year 2010!
    I hope that this one will bring you health, joy and a lot of pips of course!

    Cheers,
    MiG

  14. Dear Nick, I’m following your posts constantly and sorry: I don’t say thanks everytime, but I really find everything great and useful. Also your video helped me a lot. So please take 100 thanks for the next three monthes, in case I do not thank for every single post. And have a very Happy New Year!

  15. Simply great job Nick. I can feel your words are trying really hard to make average traders learn how to succeed. Really common sense material that most people don’t follow. Again, keep up the good work. Thanks.

  16. Thank you Nick, that helped me tremendously. I’ll look for more posts from you as what you say is clear and concise. I am in my xx’st attempt to start trading during the last 5 years, started, lost, studied again, started again…. this time its for good. I really do appreciate the help you give with your posts.