10 Powerful Tips to Enhance Your Trading Plan

The trading plan is a fundamental tool for generating profits in Forex Trading. It is simply unthinkable to frequent the market without a plan and expect results. This is because trading, in Forex as elsewhere, is a rational activity that rests on solid foundations which, if not scientific, at least have statistics on their side. One of the biggest mistakes beginners make, despite being aware of the need for a trading plan, is choosing the easiest route: adopting a plan developed by others, perhaps by an experienced trader, and following it to the letter. The best solution, in fact the only one capable of guaranteeing any possibility of success, involves either developing your own plan or adapting other people's plans. This is true because, quite simply, any plan is only effective if it suits your own trading style. But there's more: to make a plan profitable, it is necessary to prepare yourself for its use, make certain choices, and cultivate certain qualities that go in a specific direction: increasing the effectiveness of the trading action. To do all this, it is necessary to accompany the drafting of the plan or the adaptation process with a whole series of initiatives. These lead, precisely, to an enhancement of the plan itself and an improvement in your ability to use it effectively.

Practice with Demos

Before starting to trade for real, you need to study. This is a truth that you will certainly have had the opportunity to assimilate. Books, ebooks, manuals, video courses... Everything is fine, as long as it is part of a balanced and correct learning program. However, it is not enough. Theory is fundamental but represents one side of the coin. The other side is practice. The question to ask is: how to practice without causing an economic disaster? The answer lies precisely in Demo accounts, which allow you to trade in the real market but with fake money. This is a solution at your fingertips: the vast majority of brokers provide a Demo version of their accounts. What does the Demo have to do with the trading plan? Simple, whether you are a beginner or an expert, you can use it to test your strategy, and if necessary fine-tune it, without risking anything. Therefore, it is a resource to be exploited absolutely. Also because the alternative (or simply an additional resource) is backtesting, which is certainly more laborious and complicated.

Train Your Mind

And not just from an intellectual point of view. Of course, honing your analytical and interpretation skills is important, in fact fundamental, since trading is an activity that takes place in the head. However, the psychological sphere, not just the cognitive-intellectual one, plays a primary role. Specifically, it is necessary to train your resistance to stress. If there is nothing pathological at stake, that is, if you are not an anxious type, experience and market practice are sufficient. However, if you are capable of it or have been instructed in this regard, autogenic training can also bear fruit. In particular, you will have to focus on thoughts that put the importance of defeat in trading into perspective, that bring it back to an event - within certain limits - very normal. Only in this way can you make full use of the trading plan. In fact, any trading plan. Having the right mentality, being able to manage stress, allows you to avoid a dangerous dynamic: linking the strategy to your self-esteem, seeing the failure of the trading plan as a personal failure. Thus, not being able to modify it, if needed.

Identify Your Limits

Specifically, financial limits. When a trader adopts a trading plan developed by others, they face an almost physiological problem: the plan exposes them to risks that are calibrated not on their financial capabilities but on those of its creator (or of an ideal-typical trader who was used as a reference during the development phase). The consequences of this dynamic are easily guessed. Therefore, the trader is first called upon to define their limits, i.e., the amount of money they can afford to lose in the worst-case scenario without it causing problems in real life. Once this figure has been identified, they must check whether their trading plan does not expose them to greater risks. If it does, obviously, they must modify the trading plan. This is an essential step, as it determines not so much the hopes of profit but the likelihood that trading will turn from a profitable activity into a financial catastrophe.

Identify Your Profit Target

In the previous paragraph, we talked about the worst-case scenario, i.e., presented a measure to mitigate its effects. In this paragraph, we talk about its exact opposite, i.e., the best-case scenario (or at least a favorable one). If it is important to establish the maximum tolerable loss, it is also necessary to establish the expected profit, i.e., the objective of the entire trading activity. In reality, the purpose of the objective is to provide a goal, a direction. Even if it is not reached, even just an approach should be considered in positive terms. Despite the undertone of randomness, it is also necessary in this case to establish a figure. The profit target must be quantified. Not only that, it must also be given a time frame. In short, you have to establish how much you want to earn and in how much time. Obviously, choose only possible objectives. Otherwise, the "number" will not be enough to represent a driving force or a guiding tool. Both the maximum acceptable loss and the profit target represent "material" for the correct development of the trading plan, which must be written according to them.

Stay Informed About the Market and Economic Environment

The market never sleeps, at least Forex Trading. It is open twenty-four hours a day, five days a week. During this time, many things happen, both in the market and in the economic environment, and all capable of influencing prices. Therefore, it is good to keep up to date with what is happening. It is not just a useful rule for carrying out a good analysis, but also for making the trading plan more effective or, to put it better, avoiding performance drops. The reason? Simple: an event could happen, perhaps sudden, that the trading plan, as it is constructed, is not able to exploit to the fullest or manage. In that case, the trader must take full possession of their activity, disengaging, at least for a short period of time, the autopilot. Or, and this is the best alternative, integrating the new element into the trading plan.

Crystallize the Pivot Points

One of the measures that many novice traders neglect when developing a trading plan concerns pivot points. They, quite simply, are represented by supports and resistances, very useful levels as their interactions with the price generate signals of a certain reliability. Now, there are various methods for identifying pivot points. All are effective, although it depends a bit on the situations. The important thing is to identify a method and always and only follow that one, if it has proven to bear fruit. Therefore, integrate into the trading plan the instructions to calculate the pivot points every day and in the fastest / most precise way possible. The advice, at least at the beginning, is not to engage in complicated techniques, but simply refer to the daily, weekly, monthly, etc. highs and lows.

Plan Entries and Exits

These are the salient points of a good trading plan. Yet, there are those who neglect them. In any case, it is good to dedicate some space to them. Entry and exit points are nothing more than techniques for identifying entry and exit signals. Each trading plan uses a different technique, although conventionally one always relies on the usual two or three. As for entry signals, they generally coincide with the breaking of a pivot point, which can be a support or resistance depending on the direction of the trade (short or long). As for the exit, we almost always talk about stop loss and take profit. These price levels have the same function: once exceeded, they signal the need to exit the market. In the case of the stop loss, to avoid further losses. In the case of the take profit, to prevent the gain from being eroded by a breakout.

Keep a Journal

The journal is a resource often snubbed, also because it is seen a bit as a tool for teenagers. In reality, it is not the "classic diary," but rather a kind of "logbook." The diary, or logbook if you will, is not a literary whim. Far from it: it is the only way to look back at your trading activity, the only tool to be able to understand in a plastic and precise way where you went wrong. If this error depends not on your behavior but on a bad construction of the trading plan, here is demonstrated how the diary represents a perfecting tool. How do you write a good journal? It's not difficult: just select the entry and exit points, and make a report of the analyses that led to that trade. Obviously, the results must also be included. If possible, periodically draw up a small statistic, so that you can consult it easily. Obviously, use specific programs, don't go for pen and paper!

Accept Advice from Others

Cases in which trading activity allows you to relate to other traders are not frequent. Also because the environment is extremely competitive and obviously everyone plays for themselves but also against the other. However, the advice is to frequent a community and accept advice from others, especially when it concerns the trading plan. Obviously, interact with those who intervene on assets different from yours in order not to create conflicts of interest.

Be Self-Critical

If your goal is to enhance the trading plan and, through it, make your trading activity more efficient, you must shake off, if you still have them, negative and counterproductive attitudes. Among these, the difficulty in being self-critical stands out. It is fundamental in Forex Trading as everyone makes mistakes and everyone loses, and those who are not able to learn from their mistakes don't go far. At the end of the day, therefore, review what you have done - even with the help of the journal - and do a good examination of conscience.