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The 5 Step Plan For Forex Trading Success

A strategy alone won’t make you a better trader. Follow this 5 step plan, which focuses on effectively implementing your strategies, to create forex trading success. A strategy only shows you how you could make money; being able to implement it yourself is much more difficult.

Just knowing something doesn’t serve us very well in trading, and yet this is what most books, articles and forex sites teach…they give you more and more information…without showing you how to implement it (I too am guilty of this, but am sharing this information now to rectify the situation). Likely you’ve found some forex strategies online, or in a book/video/course, and while looking very promising, when you went to implement the strategies they didn’t quite work out. When you got a trade signal, or into a trade based on the strategy:

  • It was hard to tell if it was a valid trade or not.
  • You questioned whether you could get a bit better entry price (or stop loss price or target price).
  • You didn’t know what would happen next, and found it difficult to stick to the strategy.
  • You missed some signals because you didn’t see them or didn’t want to trade them.
  • The signals you did trade you may have entered too early or too late.
  • You didn’t take all the trades the strategy dictated, and many of the ones you didn’t take were winners and the ones you did take were losers.

Any of those sound familiar? Likely they do. This is one of the most frustrating things. You can see a strategy works, yet when you go to implement it, success alludes you. The problem isn’t necessarily the strategy (although it could be, but bad strategies can be avoided by doing a bit of testing and research), and the solution is definitely NOT more information or more strategies. Yet the impulse is to think you need more information, and that more knowledge or a new strategy will rectify the problem. It won’t.

The Problem and Solution

The problem for most traders, and the gap which exists between amateur and professionals, is implementation.

When you learn something you need to practice it. In trading this step often gets skipped. In the quest to make money novice traders typically scour the internet for strategies, then jump into their live trading account and try to trade the strategy. But just as you shouldn’t expect to hit a golf ball well just by reading a book on the golf swing, you shouldn’t expect to flawlessly implement a strategy after reading a trading article. It seems simple; it isn’t.

We need to train our eyes and minds to spot a trade signal, and prepare for it, before it occurs (and during the trade). That takes practice. Entering at the exact right moment takes practice, as there’s always a tendency to enter a little early or a little late in an attempt to gain more “price information/confirmation” or try to get a little better price (waiting for more confirmation isn’t a good idea: see Video on Trading, Risk, Probabilities and Trade Management).

Deviation from the strategy can’t be tolerated; developing the discipline to not deviate takes practice. Once in a trade you need to be prepared for the constant price gyrations which will fluctuate your profit/loss, making you second-guess your trade. It takes practice to learn your tendencies and handle them. Every aspect of a trade requires practice. It’s not as easy as it looks…making something look easy takes A LOT of practice.

Forex Trading Success Starting With a 5 Step Plan

Learning a strategy, and how to implement it, requires the following 5 step process. This process is laid out in detail in the Forex Strategies Guide for Day and Swing Traders 2.0. Not only does the book teach you strategies, but it shows you how to implement them, practice them and create a plan for them. The 5 step plan is simple, yet will radically change how you trade…for the better. Here are the five basic steps. But of course, you actually have to do them if you want to see results.

1. Thoroughly study whatever strategy/book/course you are working through. No live trades, or even demo trades; just study. Use your charts to find lots of examples of the strategy discussed, but don’t trade…just observe. Find examples where the strategies worked, also find examples where the strategy didn’t. What conditions were present during these times? The basic premise here is that humans are impulsive. The tendency is to scour for strategy information, read it and then try to make some money with it. Traders can’t be impulsive. This first step is about overcoming that tendency. Learn first…there is plenty of time to trade later.

2. Still no trades. Your mind is now filled with information…maybe too much. You need to condense it. Pick one or two strategies from your research, that you like and that suit your lifestyle (allow you to trade when you are able to). Create a trading plan for exactly how you’ll trade those strategies, based on the guidelines provided.

A trading plan takes a strategy to the next level; it defines your position size based on your account size, how much you can risk, if you can take correlated positions, when you can take trades,  and other limitations which aren’t necessarily defined by a strategy.

3. You now have a trading plan based on one or two strategies. Open a demo account and practice implementing the trading plan. Until you can implement the trading plan efficiently–without taking extra trades or skipping trades, and each trade you take adheres to the rules of your trading plan–you will continue to trade the demo account. Trade the demo account for a minimum of two months. This is practice time. Don’t trade live (real money), because live trading has added pressure. You need to practice and know a strategy inside-out-and-backwards before trading it with live capital. You don’t jump on the golf course immediately after reading a book on the golf swing. Instead, you spend a couple months on the driving range practicing, where you can’t hurt yourself or others (I’m a golfer, I like golf analogies).

If profitable after two months, and you’re implementing your plan exactly, open a live account and proceed to live trading (step 5) with the plan. If demo trading is unprofitable, assess whether it’s the plan at fault or if you aren’t following the plan. If the plan is at fault, make the necessary adjustments based on your two months of demo trading (step 4). If it’s your fault (you aren’t following the plan), it’s your discipline that needs work. Building discipline is developed by practicing discipline…there’s no shortcut (see: Self-Control: The Biological Factors).

4. Adjust your plan. If you’re following it, but it’s unprofitable, consider revisions you can make based on your two months of demo trading. This is where step 1 can help–look at the conditions surrounding your winning and losing trade setups, and make notes on what is different. You won’t be able to eliminate all the losers, but if you can start to eliminate some, or get more winners, you are well on your way to a more profitable trading plan. Once the new plan is created, trade it for two months. If you follow the plan and it’s profitable after two months, open a live account (step 5). If you follow the plan and are unprofitable, repeat step 4.

5. If you follow the plan and are profitable for more than two months in a demo account, open a live account. Note: if you’re profitable, but didn’t follow the plan, you must remain in demo trading mode until you’re profitable and are able to follow a plan. Without following the plan you have no idea if your results are repeatable.

Demo trading and live trading are very different. You’ll feel different trading a live account–most people feel a bit more nervous or apprehensive, and those emotions affect how we trade. Transitioning From Demo to Live Trading gives some tips on handling the switch to real money trading.

I get a lot of emails from people saying something like “I have been trading for X years and have lost over X dollars. I think I know what I am doing wrong now…but can you help me with it.” Some of these emails are from people who have been trading for more than 15 years. Putting in time won’t make you a better trader, you need to practice! The driving range is filled with golfers putting in time, but never getting better. To get better you need to work on very specific things, one thing at a time–perfecting your entry, perfecting your stop loss, perfecting your targets and perfecting the control of your emotions and impulses. All this takes time. But if you dedicate yourself to practice you can do it in several months. If you don’t follow this process, you’ll likely never improve, and in 10 years you’ll be sending the email above. Put in a few months now and follow the process; if you don’t, it could take years before you realize this is all you had to do to solve your problems and stop losing money.

Final World on Forex Trading Success

This process could take several months or more. But, it’s a reliable process for becoming a successful trader. Not following this plan could mean years and thousands of dollars wasted, not to mention loads of ingrained bad habits with nothing to show for it. Practice is good, but only structured and methodical practice results in reliable improved performance. Regardless of how good a strategy is on paper, or where you learned it, you need to practice it to make it work for you.

This 5-step method isn’t just applicable to forex. Use it in any market you trade to drastically improve your odds of success.

Trading is tough; if it was as easy as reading a book, and there are hundreds of books by great traders, then there would be a lot more successful traders. So something is obviously missing; successful trading isn’t just about knowledge, it’s about effectively being able to implement knowledge under adverse psychological conditions. The rest of the book gives you the knowledge, while the process above shows you how to implement that knowledge.

-From the Forex Strategies Guide for Day and Swing Traders 2.0

By Cory Mitchell, CMT

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