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How to Create a Trading Plan in 7 Steps

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Trading Plan – Main Talking Points

  • What is a trading Plan?
  • How to create a trading plan
  • Trading plans: A Summary

What is a Trading Plan?

A trading plan is essentially a framework that guides traders through the entire trading process. It sets the conditions under which a trader enters trades, identifies markets, exits trades and manages risks along the way. The trading plan ensures accountability and keeps traders focused on their personal strategy.

trading plan on the wall

How to Create a Trading Plan

1) Choose Your Analytical Approach

The analytical approach answers the question, “how do you identify trade set-ups?”. It could be a combination of price support and resistance, trend lines, chart patterns, Fibonacci levels, moving averages, Ichimoku Clouds, Elliott Wave Theory, sentiment or the use of fundamentals etc.

This initial step of the trading plan helps traders to narrow their focus on a handful of scenarios that the trader is comfortable with. Thereafter, traders can look for opportunities to trade based on preferred trade set ups.

2) Select Your Favourite Trade Set Ups

The trade set up is at the core of the trading process. But first, think of the analytical approach as the event that triggers the trade set up. An example of this would be viewing a consolidation pattern (listed in the analytical approach as a chart pattern) which then gives rise to subsequent action from the trader, i.e. the trader will decide to trade the breakout or wait for a pullback or combine breakouts with pullbacks only after the chart pattern has successfully played out.

Set ups are based on a number of factors that collectively lead to higher probability trades. If you are new to forex trading, this process may take some time to figure out but it is essential for traders to find a trade set up that works best for them.

3) Limit the Markets to Focus on

When starting out, it is important for traders to limit the number of markets in focus. No market is the same and limiting the scope of markets can assist traders to understand the nuances of the market in question. Traders can go even focus on specific time frames on a single market to familiar themselves with its characteristics and movements.

4) Think About Your Holding Period

Time frames will depend on the type of trader. Traders that focus on short term trades (trades opened and closed on the same day) include scalpers and day traders. Medium term traders usually hold trades for a few hours up to a few days and are referred to as swing traders. Long term trading involves time frames ranging from a number of days, weeks, months and in some cases, years.

Planning is essential to any trading plan

5) Know Your Risk Tolerance

Each step in the trading plan is important, however, if risk management is missing, the whole plan will fall apart. In this step traders will need to discover their personal risk tolerance which corresponds with how far a trader is willing to set stop losses when limiting downside risk.

At DailyFX, we researched over 30 million live trades to discover that traders with a minimum risk to reward ratio of 1:1 were three times more likely to turn a profit than traders without any defined risk to reward. This and other information all traders should know can be found in our Traits of Successful Traders report.

6) Plan How You Will Handle Adversity (and Success)

All traders will eventually experience the dreaded drawdown, so it is important for traders to set a few rules to follow once this happens in order to manage emotions. An effective way to do this is to quantify an amount, or percentage loss, that would force the trader to take a step back and evaluate what went wrong/ is going wrong. Do not fall into the trap of setting this figure along the way, rather quantify this upfront.

Now the good news – what to do when trades are successful. Confidence is good, but overconfidence can quickly turn winning trades into losing trades. If the market moves favourably it is not unusual to increase risk/exposure however, this should be kept to a minimum.

7) Have a Routine For Staying on Track

Traders should set aside time to reflect on the week’s events and analyze individual trades. It’s a good idea to regularly review the trading plan and make tweaks if necessary. Periodical trade review and journaling are excellent ways to ensure you are following the process outlined in the trading plan. Make a note or save charts relating to successful/unsuccessful trade set ups that can be reviewed later on.

Trading plans should be rigid to begin with but should become a little more malleable as the trader becomes more familiar with the market in focus. The purpose of a trading plan is to give you a strong foundation and boundaries to operate within.

Trading Plans: A Summary

  • Traders should implement a trading plan in order to establish a clear framework when navigating financial markets.
  • Regularly track your progress in a trading journal and review the current trading plan. Make alterations if needed.
  • For more information, check out Senior Analyst Tyler Yell’s dedicated podcast on the importance of a trading plan and how to put one together.



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Forex

Weekly Trade Levels for US Dollar, Euro, Sterling, Loonie, Gold & Oil

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New to Forex Trading? Get started with this Free Beginners Guide

DXY, Euro, Loonie Monthly Opening-Ranges Intact

The US Dollar Index is trading into the monthly opening-range highs into the start of the week and the focus is a reaction around the 98.05/10 resistance zone- note that the monthly ranges in Euro and Loonie also remain intact. In this webinar we review updated technical setups on DXY, EUR/USD, USD/CAD, GBP/USD, Crude Oil (WTI), Gold, USD/JPY, AUD/USD, EUR/AUD & SPX.

Why does the average trader lose? Avoid these Mistakes in your trading

Key Trade Levels in Focus

DXY – Immediate focus is on topside resistance at 98.05/10. Initial support at 97.87 with near-term bullish invalidation raised to 97.71.

EUR/USD – Euro is coiling into the monthly opening-range just above slope support. Immediate focus is on support at 1.1140. Initial resistance at 1.1187 with near-term bearish invalidation at monthly-open resistance at 1.1215– look for a bigger reaction there IF reached. A break lower would expose 1.1110.

GBP/USD – Sterling broke below multi-month slope support last week with price responding to near-term pitchfork support into the open. Initial resistance at 1.2798 with bearish invalidation at 1.2859. Downside support objectives at the August low-day close at 1.2697 and the 100% extension at 1.2662.

Gold – Risk for near-term recovery while above the yearly / monthly low-day close at 1270. Initial resistance at 1280 with near-term bearish invalidation with the monthly open a 1283.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Key Event Risk This Week

Economic Calendar- Key Data Realeses

Economic Calendar – latest economic developments and upcoming event risk

Active Trade Setups:

Learn how to Trade with Confidence in our Free Trading Guide

—Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex



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AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop

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MARKET DEVELOPMENT – AUD Soars on Shock Election, Apple Shares Slump, Risk to S&P 500

DailyFX Q2 2019 FX Trading Forecasts

AUD: The Aussie outperforms following a shock election outcome, in which Prime Minister Scott Morrison secured re-election (full story). In reaction, the Aussie gapped higher at the Asia open, reclaiming the 0.69 handle against the greenback. However, as equity markets have headed lower throughout the European morning, risks are for gains to be faded. Alongside this, key headwinds in the form of trade war tensions and a potential RBA June rate cut are likely to limit upside. Reminder, RBA Governor Lowe due to speak tonight after RBA meeting minutes (calendar)

Crude Oil: Oil prices surged at the Asia open as Saudi Arabia signalled that cuts could be extended throughout the remainder of 2019 at the JMMC meeting, while President Trump had also stepped up his critical rhetoric towards Iran. Although, with equity prices beginning to push lower, oil prices have pared the majority of its initial gains.

Equities: US equity futures have headed lower amid the continued crackdown by the US on China’s Huawei, which in turn has chipmakers come under pressure, while Google also stated that they are to restrict the company’s use on android services. Elsewhere, Apple’s price target had been cut by HSBC to $174 (median street price target = $220), citing concerns over China, while tariff led price increases on Apple products could also have dire consequences on demand. Apple shares currently lower by 2.4% in pre-market.

AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop - US Market Open

Source: DailyFX, Thomson Reuters

DailyFX Economic Calendar: – North American Releases

AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop - US Market Open

IG Client Sentiment

AUDUSD Soars on Shock Election, Apple Shares Slump, Risk of S&P 500 Drop - US Market Open

How to use IG Client Sentiment to Improve Your Trading

WHAT’S DRIVING MARKETS TODAY

  1. Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low” by Nick Cawley, Market Analyst
  2. COT Report: Japanese Yen and Euro Shorts Collapse, USD Longs Reduced” by Justin McQueen, Market Analyst
  3. Crude Oil Price May Be Carving Out a Top” by Paul Robinson, Currency Strategist
  4. Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX



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Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low

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Gold (XAU) and Silver (XAG) Price Analysis and Charts.

  • Gold (XAU) eyes a cluster of support.
  • Silver (XAG) makes afresh 2019 low as buyers disappear.

DailyFX Q2 Forecasts and Top 2019 Trading Opportunities.

Gold (XAU) Needs to Support to Hold

The sell-off on gold continues with the precious metal down around $30 in less than a week. Gold is under pressure from a resurgent US dollar, buoyed by last Friday’s Uni of Michigan data which smashed expectations and hit a multi-year high. The important 61.8% Fibonacci retracement level at $1,287/oz. failed to provide any support when broken last week, while the $1,287 – $1,281/oz. zone made up of old horizontal support is being tested now. A clear break and close below opens the way to the recent double bottom around $1,266/oz. which is currently being guarded by the 200-day moving average at $1,268.6/oz. Below here the 50% Fibonacci retracement level at $1,262/oz heaves into view.

How to Trade Gold: Top Gold Trading Strategies and Tips

Gold (XAU) Daily Price Chart (August 2018 – May 20, 2019)

Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low

Silver (XAG) Nears a Fresh Six-Month Low

Another precious metal under heavy selling pressure. Silver is now at levels last seen in early December last year and is over 11% lower since making its recent high of $16.21/oz. in late February. The downtrend since the late-February high continues to be respected and it is possible that silver completely retraces all the way back down to the November 14 low at $13.89/oz. Psychological support at $14.00/oz. may slow the decline, while the CCI indicator shows that the market is extremely oversold.

Silver (XAG) Daily Price Chart (August 2018 – May 20, 2019)

Gold Price Sell-Off Continues, Silver Price Hits a Six-Month Low

Trading the Gold-Silver Ratio: Strategies and Tips.

IG Client Sentiment data show that retail traders are 79.1% net-long gold, a bearish contrarian indicator. Recent daily and weekly sentiment shifts give us a stronger bearish contrarian bias.

— Written by Nick Cawley, Market Analyst

To contact Nick, email him at nicholas.cawley@ig.com

Follow Nick on Twitter @nickcawley1



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