These three steps will set the ground work for success with your day trading account. Many beginners simply start trading by funding a forex account. That's a sure way to blowing up your account. Do the preparation correctly, and you'll save yourself a lot of trading capital.
Planning your strategy is vital to long term success in the markets. Prepare a detailed written trading plan that will become the blueprint for your success as a forex trader. This is a working document that you will refer to regularly and make occasional adjustments to occasionally. Include the following core components to your plan:
• Overall beliefs about the market and how you are going to trade.
• Instruments traded and time frame. Choose the currency pairs and time frames to meet your needs.
• Entry Rules. These should be a precise set of rules that must occur before you can enter a trade. The rules must be concise and direct with no room for objective observations.
• Exit Rules. Exit rules are extremely important. Your entries will be useless if you do not have a definite set of exit rules. Include three types of exits: Initial Stops, Trailing Stops and Profit Targets.
• Money Management. Strict money management rules are vital. Work out exactly how much risk you are prepared to take per trade, what your maximum draw-down will be and how you are going to calculate your stops. Solid money management will ensure consistency.
• Contingency plan. What are you going to do if a worst case scenario occurs? Write down possible disasters such as a power outage, or your broker’s platform crashing and devise solutions for each. This way when a disaster occurs, you’ll know how to handle it.
Once your trading plan is in place it’s time to build your forex trading strategy. There are two major phases that need to be done to complete the building step.
Phase. 1. Enter the trading rules as per your plan into the desired trading platform or software program. Choose the forex pairs or financial instruments that you selected in your trading plan then apply the appropriate time frame, indicators, instruments and expert advisers (EA's). Set up the default trading size and stop losses into the system.
Phase 2. Once you are satisfied that your forex trading system will meet your trading plans and objectives, it’s time to test it. Testing is vital to determine the possible success of your forex trading system. You will need reliable historical data to test your system in order to ascertain its performance ratio accurately. You may need to make adjustments to your plan if you are not satisfied with the results of your back-testing. Remember to test your system in different market conditions and be careful not to over-optimise. Historical results do not guarantee future returns.
In order to turn your auto trading system into a consistently profitable trading program you should take the final step of automating it. By planning and building your own system you now have a strategy that will suit your needs. By automating your system you will ensure that it is implemented accurately, efficiently and consistently. Automation takes out the emotional aspect of trading that hinders so many traders.
In order to identify the true success of your trading plan it needs to be traded in a live market environment where all the signals that it gives, all the stops it triggers, and all the position sizes it recommends, need to be adopted 100% of the time. It is very unlikely that a manual trader is able to achieve this. However, an automated trading program using high quality trading software will. By following your system closely with error free trading you increase your probability of success.
Build your own automation by using the scripting language of your preferred platform (MQL4 and Ninja script are popular choices). This will ensure that you have a strategy that will suit your needs and fit your plan perfectly.
By planning, building, and automating your trading program, you are increasing the probability of your success in the markets and ensuring that it will be implemented profitably and consistently.