With the plethora of advertising about Forex Trading chances are, you have tried your hand at a demo account by now. Odds are you have made a handsome profit, jumped onto the bandwagon of “Forex Trader”.

The improbable overnight Millionaire Dream leads many to an addiction to Forex Trading.

Question:

 How is your first Real(Live) money account doing today? 

In my experience:

  1. 99.99% amateur forex traders lose money on their first,second  & third deposit.
  2. By this time majority will quit forex trading, their pockets can't sustain further drawdowns.
  3. 1% will double or triple their deposit and look to Revenge Trade, use excessive leverage and be washed out for the final time with a bad taste in their mouths.

 

Recognise:

 

A lot of Forex Internet wisdom centres around:

"Plan your Trade, Trade your Plan." Wise advice.

1- How do I make a "PLAN"?

2- How do I know its the right "PLAN"?

I have never received a straight forward answer to these questions.

Think about it, these question are not complete.(Different people different lives)

This article will try to guide you to the start of your plan and push you to ask the correct/complete questions.

The Holy Grail is:

Without the right questions, the answers will always be wrong.

 

STEP 1 - FACE FACTS: Beating the cycle

 

1. Take a seat, Pull up your daily trading history

2. Pull the charts back to the time of trade execution(Open), list the following:

i)   3 Reasons why the trade was taken?

ii)  What is the Risk-Reward ratio of the trade?

iii) What is the Loss in terms of percentage of your Starting Capital?

Congratulations! You now have information about your trading style.


NOW WE GET TO THE IMPORTANT PART:

Which are the correct complete questions need to answer using the above:

Assumptions:


Trader Type: Beginner            No. of Trades: 100

1-      Were you gambling?

Any trades:

a)      Without Reasons

b)      No Stop-loss or Take-profit information

c)      Leverage used makes the SL hit more than 5% of Capital.

Any of the above should be classified as Gambling.

How to break this habit?

Self-discipline is the hardest part of becoming a Trader.
For an amateur, the best way to get out of the Gambling habit is:

i)                    Enter a trade only after listing:

Reasons behind the trade, Risk-reward, Effect on capital
Do this with a pencil and paper. It will immediately reduce the number of such trades.
A physical Trade Journal is essential for beginners and recommended for all.

Remove all profitable Gambling trades from the data.

2-      Was the Trade Size correct? 

Some trades in the Loss column will have:

i)  Correct reasons
ii) Stop-loss and Take-Profit(Risk-Reward) – Perfect
iii) Size of Trade – INCORRECT

This is the most frustrating of all losses, the position was profitable but the Trade size made it impossible(Margin call) to hold till Stop-loss.

When starting out:

Decide Maximum Stop-Loss value in USD terms.

Based on the above:

Decide Maximum number of Open Positions at any point of time
Decide Maximum Position size

This is the Starting point of your Plan. Make a List of questions – answer them yourself. The next part will start with all the essential questions and a dissection of the various answers along with the NEXT STEP:


Disclaimer: Everything is based on my experience.