Chances of losing in forex trading can be high, and your entire investments could be wiped out.
It would help if you had a Forex trading plan that will significantly lower the high risks of losing your money.
To be a consistent trader, you should plan the markets to trade, cut losses, take profits, and identify other opportunities.
This article will lead you to create a strong trading plan.
What is a Forex trading plan?
Forex trading plan is specific trading activity in forex trading to help you realise your financial goals.
Plan trading assists in making crucial decisions such as what, when, and how much to trade.
The winning trading plan outline should always cover the following key areas.
- Trading motivation
- Trading time
- Trading Capital
- Risks involved
- Risk management
- Trading goals
- Forex markets to trade-in
- Risk involved
- Trading strategies
- Forex journal
Why a forex trading plan?
Making logical trading decisions while controlling the emotions in forex trading requires a good plan.
A strong trading plan will afford you the following benefits:
- Objectivity: You will stay focused on your trading objectives with a proper forex mindset that comes with an effective forex trading plan.
- Relaxed trading: Plan trading involves prior planning; therefore, you will trade without any stress.
- Discipline: A good plan will instil more discipline in you to stick to your trading plan.
- Improvement: You have better chances of improving by periodically analysing your trading journal data. Experience is the best teacher to learn from your past mistakes and experiences captured in your trading journal.
How to Develop a Forex Trading Plan
Failing to plan is planning to fail is a common mistake often made by many traders. Here are the steps to follow as you create trade plan:
1. Your Motivation
Identifying your motivation is the first step in creating a trading plan.
To help you define your motivation, ask yourself why you need to trade.
Then list down what you intend to achieve in forex trading.
The motivation for traders could be a good retirement or a new career.
2. Mental Preparation
Before you enter forex trade, you should be prepared psychologically to face the market and accept the outcome.
Remember that forex trading needs a proper mindset to avoid making mistakes while controlling fears in the trading process.
Besides, psychological preparations enable you to treat forex trading as a business venture where profits and losses are possible.
Many consistent traders have developed a daily routine to help them relax their minds before trading.
Therefore it is vital to have one that prepares you to be in the right mindset for trading.
3. Trading Time
The time you are willing and able to engage in forex trading effectively is essential.
What are times suitable for you? Morning, evening, or at work? Many trades in a day, particularly in day trading and scalping, require a significant amount of time.
On the other hand, position trading that matures after a long period needs less time to trade.
However, you may need to set alerts to manage risks in your trading outline.
Most importantly, have enough time to prepare and develop yourself for trading through education, practicing, and analyzing the forex markets.
4. What are your Goals?
Develop trading goals that are specific, measurable, and realistic within a certain time frame.
For instance, I am achieving a 20 % growth in my portfolio within one year.
Additionally, define your trading style to adopt, such as position trading, swing trading, day trading, or scalping.
5. Choose a Risk-Reward Ratio
Forex trading is a game where you will win and lose at times.
As you enter forex trading, think of how much you are willing to lose.
The risk tolerance level is personal. Some may take lower risks while others may take more risks hoping for more profits.
With an excellent risk-reward ratio, you may lose many traders but still, be profitable in the long run.
Experienced traders prefer a risk-reward ratio of at least 1:3. This ratio implies that potential profit in a trade at least doubles the risk.
To determine the risk-reward ratio involves comparing money risked in a trade to the potential gain.
For example, if you risk $ 200 hoping to make a profit of $ 1000, the risk-reward ratio is 1:5.
Must Read: What is Risk reward ratio in forex trading?
Related: How to calculate the risk reward ratio in forex trading
6. Trading Capital
The steps to win involve risks; thus, it pays to determine the amount of capital you are willing to risk.
Consistent traders have learned the importance of not risking more than they are ready to lose.
Trading above your limit could easily wipe out your entire capital!
If you want to trade forex for long, and celebrate your steps to win, set a risk limit in every trade.
An ideal limit is 1% of your capital per trade, whereas 5% is on a higher side.
Before trading with real money, it is essential to test and practice your trading skills on the free demo accounts.
Also, the practice will boost your trading confidence.
7. Forex Market Knowledge
As you create your forex trading plan, it is crucial to have some knowledge of the forex market.
Forex market is highly volatile, requiring fundamental and technical analysis for successful trading.
Do you have any knowledge of forex trading, or are you entering forex trading blindly? – a million-dollar question to ask yourself in the steps to win.
If you are a newcomer, then you have no choice but to learn the basics of forex trading.
The seasoned traders should also set time to learn more about forex markets while updating on forex news.
8. Keep a Trading Journal
A trading journal adequately documents the forex trading plan for the consistent trader.
Evaluation of the journal will show the weaknesses of your trading plan outline and the probable action to take.
Hence it is essential to evaluate your trades and performances periodically.
The journal should include technical details, decisions, trading emotions, and the outcome of every trade.
Conclusion 
Creating an effective forex trading plan needs time, effort, and research.
Although forex trading is associated with risks, having a good plan significantly increases your chances of profitable trading.
A trading plan is not stone cast but subject to improvements and changes in line with the ever-changing forex markets and improvement of your trading skills.
A simple trading plan requires constant fine-tuning while eliminating emotions.