Forex Trading plan: Why you need one and how to make one

There's a well known phrase that is very relevant when it comes to forex trading. ‘If you FAIL to PLAN, then you PLAN to FAIL'. Every good professional forex trader has a trading plan that they develop early in their careers and always consult with before making any trading related decisions. A forex trading plan is something every trader should spend time making and adhere to.

Many traders often find themselves aimless trekking though the markets going in no clear direction chopping and changing their trading style when they encounter a few losing trades. A forex trading plan is key in helping the trader stay on the path to success.

A trading plan helps the trader eliminate emotionally charged decisions, provides them with a set of ‘rules' to follow and stops them from making sloppy trading decisions.

The plan does not need to be complicated and should consist of a few simple rules that the trader will check before entering a trade.

In the forex market if things go wrong you have no one to blame but yourself. Many traders however look to blame someone or something else when the markets don't go their way. These traders never have a trading plan and are aimlessly placing trades in the hope of ‘hitting the jackpot' and becoming the next forex millionaire. A forex trading plan helps the trader outline and develop a trading method/strategy and greatly reduces the chances of ‘things going wrong'.

What makes up a trading plan?

Entry: Do you have a valid entry for your trade? Is there a pin bar / inside bar / candle pattern / support / resistance etc, supporting your entry price? It is recommended that there is more than one reason supporting your entry level. i.e. a pin bar at a support level.

Stop Loss: Where are you going to put your stop? Is your stop loss placed at a relevant level in the market? Is it at a support or resistance area? How far is your stop from your entry? Is it too far or too close?

Target: What level in the market are you going to target? Is your target the next level or support or resistance? What else supports the placement of your target area? Will you let the trade ‘run' and decide later when to close?

Risk to Reward: Are you comfortable with the R:R ratio for your trade? Is your reward at least the same if not more than what you are risking?

Money Management: How much money are you going to risk on this trade? Does this trade fit in with your money management rules? Are you risking the same % as you risked on your last trade?

The 5 rules above are critical to stick to when placing trades. It is very important to have more than 1 confirmation when placing a trade. For example you may want to trade an inside bar pattern, however it is wise to only take the trade if there is something else supporting the inside bar pattern you've just noticed, i.e. the inside bar pattern has formed at a strong level of support.

You must remember to never adjust the size of your stop loss in order to meet a desired position size. Using good money management will make no difference to the number of pips you are risking on any given trade.

It is crucial to take proper note of your Risk to Reward ratio. You should never be risking more than what you are targeting. Ideally you want to be targeting at least 2x what you are risking.

Never be unrealistic in trading!! Although possible it is highly unlikely that a stop loss of 10pips will produce a target of 500pips. Being realistic in targets is very important and helps control emotions and keep them in tack.

Above is a forex trading plan for an actual trade. It's a good idea to expand your plan to take into account the bigger picture. For example you may want to include a weekly or monthly target that you will be aiming for or the maximum amount of drawdown you will be prepared to endure before re-evaluating your trading strategy/method.

Forex trading plans help keep you on the track to success. It's recommended that you write your plan and keep it next to your computer while trading. If your plan is ‘somewhere in your head' it will soon get lost or disregarded. If it is printed out in black and white next to your computer it will encourage you to STICK TO YOUR PLAN!!

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Economic Indicators Applicable In Different Countries Posted By: Patrick Kalashnikov

Unemployment Rate
This rate expresses the percentage of a people in a workforce who are willing and able but dont have jobs. People who are not working but not part of the workforce (such as students, handicapped, and retired individuals) are not included in these figures.
Importance
Unemployment is considered to be a lagging indicator, one that only shifts after underlying economic conditions have already changed. This rate can cause moderate volatility in the market because it gives forex brokers and traders clues about future interest rates and monetary policy. Unemployment can also indicate an increase or decrease in future consumer spending.
Market Impact
When unemployment rates are lower than expected, currencies usually appreciate because interest rates usually increase. When unemployment rates are higher than expected, currencies could weaken, leading to lower interest rates. These factors are important for forex trading.

Trade Balance
The ratio of imports to exports for a given countrys economy is called the trade balance. A trade surplus occurs when exports are higher than imports, and this means that the trade balance is positive. A trade deficit occurs when imports are higher than exports, and this means that the trade balance is negative. Trade balance is primarily derived from the price of goods in a country, the tax and tariff levies on imported or exported goods, and the exchange rate between two currencies.
Importance
Information on a countrys net imports and exports can help predict future inflation and foreign investment trends. Such predictions can give clues about the future behavior of any currency market. A Forex broker or trader would be wise to investigate any current or future shifts.
Market Impact
Trade balance heavily depends on the current exchange rate between two countries and is an important coincident indicator of a foreign exchange asset markets state.

Consumer Confidence Index
The CCI is a monthly survey that asks 5,000 US consumers about their spending patterns and their feelings toward the current economy. Participants are also asked about their confidence in buying expensive consumer goods. Happy consumers generally do more shopping and travelling, which keeps the economy strong. The report expresses both current sentiment and expectations for the coming months. Neutral is around 100; a CCI below 75 is generally weak, and above 125 is considered strong.
Importance
If the CCI drops sharply, then a weakening economy is possible. However, experts say that the correlation between spending and CCI figures is not very strong and that only changes of at least five points can be considered significant.
Market Impact
Foreign investors on forex trading platforms are worried by pessimistic consumers. A low CCI can indicate the increased probability of falling interest rates and a weakening economy. These would greatly lessen the dollars value, and foreign investors might sell in favor of higher yields and stronger economies in other countries.
However, a high CCI can indicate rising interest rates and a higher return from the stock market. This would also increase the demand for the dollar in FX trading.

Durable Goods Orders
The dollar volume of orders, shipments, and unfilled orders of durable goods is measured by this government index. Demand from both foreign and domestic sources is taken into account.
Durable goods are new or used items that have a normal life expectancy of three or more years.
Importance
This index is an important indicator of future manufacturing activity as well as consumer and business demand for equipment. An increasing index suggests that increased demand will likely result in increased production and employment. The opposite is true of a falling index.
Increases in aircraft and defense orders can skew the report, so these categories should sometimes be discounted when determining whether or not a market-wide increase has occurred.
Market Impact
Because Durable Goods Orders is considered to be a leading indicator of manufacturing activity, the market has been known to move in direct response to this report.

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