Forex Mistake #2 – NOT HAVING A TRADING PLAN

Suppose you called your 401K manager this afternoon. Suppose you asked him “What is your plan for the next six months?” Suppose he told you “Oh—whatever. I just try to get on the right side and if I don’t I just get out”

How long would that guy be managing your retirement money if you had any say in the matter?

forex mistake #2- not having a trading plan

Many traders take the same attitude with their daily work habit and many don’t even know they do it. Not having a clear and concise plan for your daily trading presence is a serious mistake and you need to address it. The best way to describe a sound plan is to let you read one from a professional full-time trader. This is an actual  example of trade plan from an E-mini trader:

2009 Trading Plan

My goal is to earn 100% on my trading equity before the end of the year. To maintain my focus I will set a near term goal every quarter to be at a 25% gain and I will plot my equity daily. If I reach my quarterly goal ahead of the last trading day of the quarter I will take a two-day break. I will hold any open positions that are at a profit but any open trade losses I will close at that point before I take a break.

If my open trade gains continue into the new quarter I will add to those winning positions by a factor of 25%. I will move my protective stops up to reduce my exposure on the entire position.

If I am behind on my trade goal for the quarter, I will take a five-day break. I will re-evaluate my trade system and ask the question: “Has my market quality changed to something my system is not able to perform at best?”

During the year I will not trade more than three markets. I have learned I cannot focus well on more than three markets at a time.

If I have more than four losing trades in a row in any of my three markets I will take a trading break for five days. Again, I will leave open position winners alone in the other markets but close all losing  positions. I will again roll protective stops to reduce my risk.

When I take a trading break, I will enter resting limit orders in the open trade winners to take the objective profit should I be unavailable and the market gets to those levels during my break.

If I am ahead of my plan for the year at any point I will take a break. I will take 30% of the new equity out  of my account and place that into a secure place. If I am behind I will not add equity under any circumstances. If I reach a 40% drawdown from my high equity I will quit for the year.

I will record my daily trade activity in my trading log and review this weekly. I will know my ratios and results; I will look to improve them by 5% each week.

I will trade only from the bull side because my analysis tells me that all three of the markets I have selected have more than a year of solid bullish fundamentals. I will learn how to use options this year because I see from last year I could have protected more trades if I had a solid grasp of when to use options and when not to. I will invest two-hours a week on option knowledge.

My son is leaving for Europe in May. I will not trade the week before he leaves or the week after. I plan to join him in the fall for October fest for one week and will not trade the three days before I leave or when I  get back. I know I suffer from jet-lag so the week after I am back I am not at my best. I have blocked out these times on my trade calendar so I will not be tempted to trade anyway.

HOW TO MAKE THIS MISTAKE WORSE: Base your trading plan on hypothetical profits or on howwell you did paper-trading, Ignore your personal emotional needs when compiling a plan, Ignore your family while making a plan, keep thinking you can trade everyday or all the time, average your potential over a period of time and think results will equal a daily amount.

SOLUTION: Ask a professional trader to show you his daily/weekly/monthly or annual trading plan. Ask yourself if you can make a plan that addresses similar things. If the professional you have selected can’t show you or won’t show you his plan then ignore what he has to say. If he isn’t using a plan then he is likely unable to assist you in building wealth. There are resources for writing trade plans on my site; please use them.

Source : Ebook by www.forexbrotherhood.com

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