Trading forex without a good trading plan is like driving with your eyes closed; you are bound to get caught in unwanted ‘accidents’ that will cost you a lot of money sooner or later. In order to avoid this situation, all you need to do is formulate your own trading plan. This article will tell you several important aspects of a trading plan and help you create one yourself in no time.
First, you need to look at your trading capital and determine the right trading size you can afford. If you are trading with a capital of less than $10,000, it would be better to steer clear of full lots and trade mini or even micro lots instead. You will only receive $1 instead of $10 when you trade mini lots, but your initial capital will be protected as well.
The right trading size also means you have more risk management options that will help protect your investment. If the market moves against you, for example, losing $1 per pip with smaller capital is certainly not the end of the world, but losing $10 per pip can be. With smaller loss, you can easily maneuver through the situation and use advanced risk management strategies including hedging and averaging to secure profits.
Of course, you also need to set a target profit and a stop loss. Formulate the general rules and use them whenever you trade. Even if the trade is not successful, you don’t have to worry about losing too much money.