A forex trading plan is only effective if it’s followed.
You have to stick to it.
It sounds simple to do. It is really just common sense but most traders still can’t do it.
Why, oh, why?
Trader incompatibility.
A trading plan should be a personalized plan for you, a plan that fits your own goals, risk tolerances, and individual lifestyle.
You must develop each component on an individual basis, never losing sight of the fact that it must be custom-tailored to YOU and YOUR needs.
Not your girlfriend’s. Not your boyfriend’s.
Not even Ronald, your weirdo best friend whose head is shaped like a hamburger who likes to wear pink polka dot pants and is an aspiring rapper.
Your trading plan must be made based on reality, not on hope.
If you’re simply trying to copy somebody else’s trading plan or yours is based on false assumptions, then you will not be compatible with it and will have trouble following it.
SOLUTION: Be honest with yourself. Then revise your trading plan.
Trading plans are intended to be long-term.
Many forex traders give up on their trading plan, or often more specifically, the trading system in the trading plan.
Why?
They are unable to endure a string of losses. Rather than sticking it out through the inevitable rough times, they give up.
SOLUTION:: Be patient!
Trading according to a plan requires sticking to it through thick and thin. That takes discipline. Rock solid discipline.
Forex traders lacking discipline do not stick to their trading plans. You need to be disciplined. Rock solid. Does it sound like we’re beating a dead horse? Well, good.
SOLUTION: Stay disciplined!
Self-destructive behavior: Some forex traders have deeply ingrained psychological issues that will sabotage them.
This can be resolved with hard work on one’s self, but the trader must be self-aware of such issues first. You can’t figure out a solution if you don’t know the root problem.
When you stop following your trading plan, you become rewarded for a lack of discipline and you may start believing that abandoning a trading plan is no big deal.
An unjustified reward may increase your tendency to abandon trading plans in the future. You may be prone to think “I was rewarded once; maybe I will be rewarded again. I’ll take a chance.”
But the positive outcomes of undisciplined trading are usually short-lived, and a lack of discipline ultimately produces forex trading losses.
Distinguish justified wins from unjustified wins.
A justified win is when you create a very detailed trading plan and FOLLOW the plan. A win that results from following a trading plan is justified and reinforces discipline.
An unjustified win occurs when you drift from or completely ditch the plan. You might be rewarded, but the outcome occurred by chance.
You might as well flip a coin or hang a printed copy of your charts on the wall and throw darts at it to help you make trading decisions. The win is unjustified and can reinforce undisciplined trading.
SOLUTION: Look in the mirror. Hopefully, you don’t turn to stone.
If you’re personally having trouble sticking to your trading plan, most likely it’s one of the reasons above. If it is, refer to the solution below it.
Consistency is key!
Maintaining discipline is vital for consistent and profitable forex trading.
Trading is a matter of getting the law of averages to work in your favor.
The winning trader is one who first develops the skill to make the shot consistently so that at every possible opportunity, the ball is likely to go through the basket.
One must trade consistently following a specific trading plan on each and every single trade.
If you trade one approach this time, and a different approach at another time, your performance will likely be all over the place, too.
What’s more, you’ll have a more difficult time pinpointing which strategy works and which doesn’t.
With discipline comes profitability. Don’t let unjustified wins interfere with your ability to maintain discipline.
Follow your trading plan, and cement in the mindset that if you follow your plan, you will end up more profitable in the long run.