Tips For Devising a Sustainable Forex Trading Plan

Success in the forex market is always tied to sustainability for your forex trading plan. You will always come across trading opportunities that have good profit potential but you will have to work with a well-defined strategy to find the right ones for yourself. Many traders tend to think about making some quick bucks from trading but you cannot call yourself successful until you find a strategy that you can rely on for making consistent profits in the long run. 

In this blog, I will be sharing some simple tips for devising a sustainable forex trading plan. 

Understanding Forex Market Basics

To develop a viable trading plan, you need to start by understanding the basics of the forex market and currency trading. The forex market has been there for a long period of time but it has gained a lot of traction in the last few years as more and more people are open to the idea of trading. Being the biggest trading place on earth, the international currency market has some unique characteristics that make it stand ahead of other traditional financial markets and asset classes. 

Because of this uniqueness, there are a lot of forex terms that you may not have heard before and you need to learn about them before venturing into trading. For example, the price movements that happen in the forex market are measured in pips. Because the trading instruments are currencies paired with each other the exchange rate fluctuations make it harder to keep track of price fluctuations with precision. 

Pip being the standard unit for measurement, makes things easier for traders and tools like pip calculators are available to make it easier for you to know the pip value in your own currency to have a proper estimate of the profit or loss you have made. You should also learn about terms like going long, shorting, position sizes, margin and more. Studying price charts and pattern recognition is essential to deciding the ideal trade opportunities to utilise in your strategy.    

Setting Clear Trading Goals

Your trading plan is like a map that tells you the direction in which you need to move to reach your goals. To choose your direction, you must be sure about the goal that you want to achieve in the end. Hence, you need to set clear trading goals that are realistic and unambiguous. When your goals are vague, it invalidates the purpose of having a goal in the first place as it only makes you confused. 

Your trading goal should not be limited to the amount of profits you want to make. It should also cover the progress you want to make as a trader and what would be the outcome that you expect when you become a skilled trader over time. Having long-term goals is what allows you to build a sustainable strategy that can perform well for a long period when you stick to the plan. 

You should assess the profit potential of your trading system and always use a profit calculator while planning your trades. The profit calculator will tell you the potential result of a trade in your preferred currency when you specify the details such as the currency pair, the price at which you will enter and exit the trade, lot size etc. You can break down your trading goals into small profit targets.  

Incorporate Risk Management 

One integral component of a sustainable trading plan is risk management and you need to incorporate it before you start following the strategy that you have found. Because no strategy can be 100% perfect and even if it is flawless losses are sure to happen at one point or another. Thus, you should be well-equipped to deal with unfavourable market situations with a sound risk management plan. 

Risk management is done by deciding the amount of risk you can take as a trader and then limiting your risk based on the same. Keeping the risk per trade to 2% of account balance, optimal position sizing and being careful about leverage are some important steps to control your risk exposure. You should also set a risk/reward ratio that allows you to earn more with minimal risk. 

Setting a stop loss is mandatory for all the trades that you enter and you can also place a take profit for minimising the risk of losing the profits to an unexpected reversal. Managing any type of risk is crucial to secure your trading capital while trying to make more money and you need to avoid errors and save time by depending on various trading calculators that give error free metrics within seconds. 

Picking A Suitable Trading Strategy

There are a lot of popular trading strategies that you can follow for forex trading but not all of them would suit your requirements, preferences and risk appetite. In fact, many traders make the mistake of trading with a strategy that does not align with their trading goals and it would be impossible to get expected results without a personalised strategy. You need to start by selecting a trading style.  

If you are a part-time trader, then trading styles like scalping or day trading will not work for you as you won’t have enough time to monitor the market. These strategies are also more stressful and intense which makes it even more challenging for an average beginner. Thus, it would be better to start with something less complex like swing trading as you will be trading with longer timeframes.

You should also decide the method that you will be using for analysing the market situation and finding trade setups. The majority of traders focus on technical analysis but you need to also combine fundamental analysis for strategies like news trading. Combining both technical and fundamental analysis would be ideal for long-term strategies like position trading. 

Record Keeping and Performance Review

Lastly, once you finalise your trading plan and strategy, you can go live after you are satisfied with the results you got with backtesting. When you start trading on a real account, you need to keep a trading journal to record your trading activities. You should clearly state all details of your trades along with the logic that you applied for making the trading decisions. 

The trading journal helps you to stay on the right track without any deviation from your original trading plan. You need to make sure that you are following the rules and also review your trading account performance on a regular basis to detect any mistakes. When you assess the strengths and weaknesses of your trading system, you will be able to make timely corrections to get better results. 

But at the same time, you need to adapt to the changes that happen in the forex world and modify your strategy as and when needed. Because sustainability is also about being flexible and embracing the changes.  

Final Thoughts

So, these are some simple tips that you can follow for building a sustainable trading plan that can lead you to success in the dynamic forex market. But you need to remember the fact that even a sustainable strategy will not work forever unless you keep working to improve it. It is more about planning with a long-term approach.