Forex Trading Plan
A forex trading plan is one of the elements that separates professional forex traders from newbie traders and it often spells the difference between success and failure. A forex trading plan contains details of specific decisions a trader would need to make while trading such as what lot size to use. Our forex trading plan below reveals that at the end of 22 weeks (i.e. about five and a half months of trading with an initial balance of $200, a forex trader would have withdrawn a total of $87,687.50 with an account balance of $48,600 left for trading and a potential for withdrawing $27,337.50 every two weeks. This calculation is based on a weekly net profit of 200 pips trading an instrument whose pip value is $10 per standard lot. How's that for financial freedom? Note that the leverage decreases with increase in volume of trade - 400:1 for 0.1 to 3 lots, 200:1 for 3.1 to 10 lots, 100:1 for 10.1 to 50 lots & 40:1 for 50.1 lots and upwards - as obtainable on the CMSFX VT Trading Platform.
| Week | Account Balance |
Risk Capital (12.5%) |
Lot Size | PIP Value |
Net Profit (200 pips per week) |
Equity | Withdrawn |
| 1 | $200 | 25 | 0.1 | 1 | 200 | 400 | $0 |
| 2 | $400 | 50 | 0.2 | 2 | 400 | 800 | $400 |
| 3 | $400 | 50 | 0.2 | 2 | 400 | 800 | $0 |
| 4 | $800 | 100 | 0.4 | 4 | 800 | 1600 | $800 |
| 5 | $800 | 100 | 0.4 | 4 | 800 | 1600 | $0 |
| 6 | $1,600 | 200 | 0.8 | 8 | 1600 | 3200 | $1,600 |
| 7 | $1,600 | 200 | 0.8 | 8 | 1600 | 3200 | $0 |
| 8 | $3,200 | 400 | 1.6 | 16 | 3200 | 6400 | $3,200 |
| 9 | $3,200 | 400 | 1.6 | 16 | 3200 | 6400 | $0 |
| 10 | $6,400 | 800 | 1.6 | 16 | 3200 | 6400 | $3,200 |
| 11 | $6,400 | 800 | 1.6 | 16 | 3200 | 9600 | $0 |
| 12 | $9,600 | 1200 | 2.4 | 24 | 4800 | 14400 | $4,800 |
| 13 | $9,600 | 1200 | 2.4 | 24 | 4800 | 14400 | $0 |
| 14 | $14,400 | 1800 | 3.6 | 36 | 7200 | 21600 | $7,200 |
| 15 | $14,400 | 1800 | 3.6 | 36 | 7200 | 21600 | $0 |
| 16 | $21,600 | 2700 | 5.4 | 54 | 10800 | 32400 | $10,800 |
| 17 | $21,600 | 2700 | 5.4 | 54 | 10800 | 32400 | $0 |
| 18 | $32,400 | 4050 | 8.1 | 81 | 16200 | 48600 | $16,200 |
| 19 | $32,400 | 4050 | 8.1 | 81 | 16200 | 48600 | $0 |
| 20 | $48,600 | 6075 | 6.1 | 61 | 12150 | 60750 | $12,150 |
| 21 | $48,600 | 6075 | 6.1 | 61 | 12150 | 60750 | $0 |
| 22 | $60,750 | 7593.75 | 7.6 | 76 | 15187.50 | 75937.50 | $27,337.50 |
| $48,600 |
The only problem with the above trading plan, however, is over leveraging. It may be very difficult to succeed with that level of leverage. Nevertheless, discipline is the keyword for trading your plan successfully. 'Plan your trade and trade your plan', so the saying goes. The following are pertinent success factors to consider in order to realize the plan above.
- Volatility: A volatile market provides greater profit potential than a quiet market. Bollinger bands is an excellent technical indicator of volatility. If you want to be sure of making profit, avoid trading when the Bollinger bands are contracting.
- Trend Analysis: A trending market provides greater profit potential than a ranging market. Always trade in the direction of the trend in order to avoid incurring losses and wasting your time with unprofitable trades that tie down your trading capital . As they say, 'the trend is your friend'. Moving Averages are an excellent technical indicator of trend and is discussed under FX trading strategies.
- Market Entries and Exits: The points at which you enter and exit the market determine whether you make a profit or loss and how much. See FX trading strategies and FX trading signals to learn how to enter and exit the forex market.
- Risk Management: Forex trading carries a high risk of financial loss just as there is a high potential for financial reward and so, applying risk management measures is essential for success. When starting out, it is best to limit your choice of instruments and open positions to one and never risk more than 10% of your equity per trade. Always generate rule-based trading signals before opening a trade. For more information, read our article below titled 'Profiting In An Uncertain Currency Market'.
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Profiting In An Uncertain Currency Market
Self-directed Vs Automated Forex Trading
How To Trade Forex As A Newbie
