Developing a Disciplined Trading Plan

No matter which trading style you decide to pursue, you need
an organized trading plan, or you won’t get very far. The dif-
ference between making money and losing money in the forex
market can be as simple as trading with a plan or trading with-
out one. A trading plan is an organized approach to executing
a trade strategy that you’ve developed based on your market
analysis and outlook.
Here are the key components of any trading plan:

Determining position size: How large a position will you
take for each trade strategy? Position size is half the
equation for determining how much money is at stake in
each trade.
Deciding where to enter the position: Exactly where will
you try to open the desired position? What happens if
your entry level is not reached?
Setting stop-loss and take-profit levels: Exactly where
will you exit the position, both if it’s a winning position
(take profit) and if it’s a losing position (stop loss)? Stop-
loss and take-profit levels are the second half of the equa-
tion that determines how much money is at stake in each
trade.
That’s it — just three simple components. But it’s amazing
how many traders, experienced and beginner alike, open posi-
tions without ever having fully thought through exactly what
their game plan is. Of course, you need to consider numerous
finer points when constructing a trading plan, and we focus
on them more in the full version of Currency Trading For
Dummies. But for now, we just want to drive home the point
that trading without an organized plan is like flying an air-
plane blindfolded — you may be able to get off the ground,
but how will you land?
And no matter how good your trading plan is, it won’t work
if you don’t follow it. Sometimes emotions bubble up and
distract traders from their trade plans. Other times, an un-
expected piece of news or price movement causes traders
to abandon their trade strategy in midstream, or midtrade,
as the case may be. Either way, when this happens, it’s the
same as never having had a trade plan in the first place.
Developing a trade plan and sticking to it are the two main
ingredients of trading discipline. If we were to name the one
defining characteristic of successful traders, it wouldn’t be
technical analysis skill, gut instinct, or aggressiveness —
though they’re all important. Nope, it would be trading disci-
pline. Traders who follow a disciplined approach are the ones
who survive year after year and market cycle after market
cycle. They can even be wrong more often than right and still
make money because they follow a disciplined approach.