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Creating a Trading Plan (Part 1)

A survey has proven that trading results based on a plan perform much better than trading without one. A trading plan is a set of rules that govern an individual's entire trading activities. The end results of traders who follow such a plan are significantly better compared to those who do not have one. The wise saying in the business world, "If you fail to plan, you plan to fail," applies equally to trading in the forex market.

Those who have a clear trading plan can enter the market with ideas that have been planned based on personal psychology, trading style, strategy, and goals to be achieved. A good plan will help traders remain objective and reduce emotional involvement that can cause stress. With a structured plan, traders can sustain themselves in the market with more consistent trading results.

When traders can reduce emotional involvement in trading, they can trade more efficiently. Decisions made will be more rational and directed according to what has been planned in the trading plan. Depending on individual preferences and needs, traders can also use scripts, create Expert Advisors (EAs), or even develop trading robots as substitutes for conventional trading plans. However, not all ideas can be adapted into a program, so the use of trading software is not always a necessity.

Most professional forex traders still rely on conventional trading plans written manually. They often distinguish between a trading plan and a trading strategy. A trading strategy focuses only on entry and exit levels, and trade management, while a trading plan encompasses the entire trader's mindset, including trading strategy, short and long-term goals, risk management, routines, and emergency actions to be taken if the situation threatens the trading account.

The trading plan should always be updated and adjusted with new ideas, skills, and knowledge of the trader. This ensures that the trading plan remains relevant to the constantly changing market conditions.

In essence, a trading plan should include five main elements:

  1. Trading Mindset
  2. Trading Goals, both Long-term and Short-term
  3. Money Management, including Risk Management
  4. Trading Strategy
  5. Trading Routine

Before discussing each of these elements, traders must clearly understand their motivation for trading forex. This motivation will influence their mindset and approach to trading once they dive into it.

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