7 Crucial Components of a Simple Trading Plan

Have you ever seen a ship sail into the ocean without a compass to guide its journey? Having a trading plan is just like that; it helps to guide you through the trading process smoothly without any hiccups at all. But the secret to doing this efficiently lies in having a plan that is very simple to grasp and apply. In today’s post we will discuss the components that make up a simple but effective trading plan.

#1 – Focus Only On Important Markets

The first step to a simplified daily trading plan is to make sure that you do not fritter away your time and energy in looking up the unimportant stuff. Focus on the major markets and this means you should be concentrating on just the top 10-12 and not anything more than that each day.

EURUSD, GBPUSD, AUDUSD, NZDUSD, USDCAD, USDJPY, EURJPY, GBPJPY, AUDJPY, XAUUSD, WTI, DJ30

That is 12 markets, more than enough to focus on. If you are in the USA and you can’t trade spot Gold, Crude or Dow then just focus on the currency pairs listed.

#2 – Discipline Your Chart Watching

Newbie traders often tend to look at different sets of time frames in their charts in an attempt to over analyze the charts or to find what they are looking for in a market even when the conditions are not so favorable. This is totally against the character of a simplified trading plan and will not benefit your trading in any way. So discipline yourself to watch only the daily charts and not any other time frames.

#3 – Pick One Stick to One

Yeah, you need to be quite particular when it comes to putting together a simple and winning trade plan. You must choose only the best setup that you are comfortable with and have mastered skillfully. This setup is the only one you need in your simple trading plan and do not waste your time on anything other than this.

Sticking to just one setup on a consistent basis will help you in having successful trades and even if you do not make huge profits, you will at least stop losing money on your trades.

#4 – Manage Your Risk Efficiently

Successful forex trading is all about learning how to manage your finances efficiently. If you have learnt to manage your risk versus profits ratio correctly, then you have succeeded as a forex trader. Since we are discussing a simplified trading plan here, it is best to have a risk versus rewards ratio at 1:2.

If you need to place a stop-loss by risking 1R per trade based on surrounding market structure, you must place your profit targets with the aim of getting a 2R reward on every trade. To illustrate this further, it means that if you are risking $50 per trade, you will have to aim for $100 profit target.

Your aim to achieve a profit target of 2R should be based entirely upon the prevailing market conditions. That is to say that if the market conditions do not look favorable or realistic to raking in 200% profit, then you must leave without getting tempted to risk your money.

#5 – Make a Record

A trading journal is a must have ingredient of a simplified trading plan. You really cannot have a working plan to trade successfully without recording your trades, strategies and moves. Having a record helps in keeping track of all your winning and losing moves.

You have a record to go back to study your previous trades and analyze what went wrong in your losing trades or what was your golden strategy in your winning trades. Above everything it also imparts a professional feel to your forex trading making it easier to look upon it as any other business.

#6 – Evaluate Your Plan

In order to be fool proof any plan needs evaluation and analysis. You simply cannot keep using your plan without confirming if it is actually working for you or not. A period of 2 / 3 months is a great duration to test a particular plan. After 2/ 3 months of using a plan, sit back and analyze it closely with regards to the results it has achieved for you.

The 2 major signs of having a winning plan is that you have either stopped losing money since using it or maybe you are making profits, albeit how small they maybe.

#7 – Get Ready for the Challenge

No matter how great your plan is or how meticulously you have picked the winning components of this plan, it will help you in succeeding at your forex trading only if you look at it as a challenge. Let’s be honest here and accept the fact that it takes a huge amount of discipline to stick to any plan, even if it entails simple things like getting up at a particular time each morning.

So after you have got your plan ready, get prepared to chin up to the challenge and promise yourself that you are going to come out of winning.