Write than winning trading plan
Like so many other things in life, when it comes to trading smart and making the most of your money in a stock market or even the Forex marketplace as you trade, using tools like those offered by Synergy FX, having a great trading plan in place can help you make the right choices to watch your money grow.
But what are the actual steps involved in writing a winning trading plan that will work for you? Check out the four steps below to get started.
1. Set Your Risk Level
Setting your risk level is important in writing any trading plan. This basically answers the question of just how much of your current portfolio you should be risking on a single trade. So, for example, you can set your risk at just 1 per cent, or you can go higher, to around 5 per cent of the portfolio, on a trading day.
What does this ultimately mean? Well, if you end up losing that amount that you set at any point throughout the trading day, you can leave the market for the rest of the day and stay out of it in order to minimise your losses and try again another day.
2. Set Your Goals
Prior to entering any trade, you should also set profit targets, as well as risk-reward ratios, that are realistic. In other words, what's the minimum risk-reward that you'd be willing to accept?
A lot of traders won't end up even taking a trade unless the profit potential is a minimum of three times larger than the risk involved. So if your stop loss is £1 for every share you trade, the goal would be to make at least £3 in profits.
When setting profit goals, you can set them as pounds or as percentages. Just be certain to reassess these on a regular basis, and it's a good idea to set them weekly, monthly, or annually.
3. Set Exit Rules
Other rules that need to be set are your exit rules. Many people make the error of focusing too much on buy signals, paying less attention to where and when to exit. Make sure instead that you're comfortable with selling if you're down, as you'll sometimes need to take a loss.
Prior to entering a trade, know where the exits are, and there should be at least two for each trade. Figure out what the stop loss will be if the trade doesn't work in your favour. And every trade should also have a profit target.
4. Set Entry Rules
Remember, exits are more imperative than entries, but you still need to set entry rules. When the conditions that you've set are happening, you can enter the marketplace and feel really confident with making a trade. If you hit your profit target or a trade unfortunately doesn't go your way, you can exit.
Once you have your trading plan in place, just make sure that you tweak it, as needed, as the conditions of the marketplace, your portfolio, and your budget change.