Why do You Need a Forex Trading Plan?

In order to be successful over the long term in managing emotions, a forex trader generally requires an objective trading plan with set trading rules and objectives that will produce consistent profits without incurring excessive draw downs. In addition, the trader has to cultivate a successful trading mindset that will include the discipline to stick to their trading plan once they have decided to implement it.

Some Advantages of Forex Trade Plans

Basically, having a trading plan helps traders treat trading forex more like a business. Most people interested in forex trading already know that anyone running a business generally requires a business plan in order to have an organized basis from which to achieve greater success.

The main advantage of having a trading plan stems from the fact that it gives the trader an opportunity to trade objectively and therefore with greater confidence and less emotional involvement. When engaging in a risky endeavor such as forex trading, having enough confidence to return to the market after taking an emotionally-draining loss can ultimately be the determining factor between success and failure.

Successful Traders Use Trade Plans

How successful traders behave becomes most readily apparent on the floors of the major futures exchanges where thousands of people trade a multitude of different financial instruments, currencies and commodities in a central location or trading pit. Traders of all types find themselves on these exchange floors - day traders, scalpers, spreaders, option traders, as well as brokers executing orders for clients.

Yet very few, if any of the successful traders on those floors trade without a trading plan.
Not only does this fact generally hold for exchange floor traders, but it applies to off floor traders too. Basically, the market does not play favorites and can be equally unforgiving to all participants, so those who have a plan tend to survive, while those without one do not.

Futures Traders Use Trade Plans to Make Sense Out of Chaos

To the average person when seeing the activity in a futures trading pit, it will probably look like a chaotic event with people shouting and gesticulating wildly as the market fluctuates. This especially holds true of fast markets that can occur during major economic data or news releases.

Nevertheless, the frenetic activity which appears chaotic in reality occurs in quite an orderly fashion in the transacting of trades. The wild gesticulating actually arises from traders and clerks using hand signals to communicate with each other and to service the off-floor traders on the phone or out of earshot.

Even floor traders operating in such challenging conditions trade with a plan, and this helps them make sense and order out of the apparent chaos. For example, some can be scalping the order flow or market-making, while others might patiently wait for a rate where they can enter a strategic short or long position based on technical analysis. Still other traders work in teams or for large market-making firms.

Nevertheless, what connects all of the traders operating both on or off of the huge futures exchange floors is that they will generally work within a proven trade plan and will have developed a disciplined trading mindset that helps them stick to this plan.