Hello Forex Traders,
Today’s goal is to translate last week’s “7 Most Important Focuses of a Trading Plan” from theory to practical, real life situations. Theory is important but the practical implementation is an equally vital step in the process.
Every person is unique of course every person’s experiences, character, strengths & weaknesses, goals, motivation, means, etc will differ from trader to trader. Obviously, it is impossible to discuss all individual deviations. But we can “group” certain behaviors, characters, and means together to make more general interpretations. Of course, the real world is sometimes not as “clear cut” but most Forex traders will have a decent idea what elements might or might not apply to them.
STEP 1) MOTIVATIONAL DRIVER
This vision and mission can severely differ from one Forex trader to the next. The vision for some Forex traders is to build up an additional source of income during retirement, whereas others aim to focus full-time in the field of trading. The vision will differ widely from person to person, but here is a potential list of goals:
1) Earlier retirement
2) More resources during retirement
3) Full-time business as a Forex trader
4) More resources as a side income with job
5) Ability to study
6) Ability to study for children
7) Resources for family
8) Provide resources to charity services
9) Dream house
10) Risk capital as capital diversification strategy
11) Desire to succeed in trading
12) Desire to succeed in the psychological battle of the trading game
13) Desire to be a master trader
14) Desire to be a master analyst
Some visions and goals are connected to becoming proficient in trading itself (becoming a master trader), whereas other goals and visions are focused on what a person can achieve with trading (financial means to invest, study, purchase).
It is important to realize the difference, and understand that goals connected to the process instead of the outcome enhance the learning process quicker. Most successful people are successful because they actually enjoy the activity they are performing in its own right, without the financial benefit. Studies always show that people learn a lot quicker when they enjoy something without any external benefit compared to the people who learn something with the purpose of gaining a benefit (source: Jim Kwik, Kwik learning).
Therefore we advise – if possible and indeed suitable for you as a trader, to have 2 visions and goals: 1 which is focused on the process and 1 which is focused on the outcome.
Are there certain goals, motivations and visions that you would like to add to this list? Please write those in comment section down below!
STEP 2) CURRENT SITUATION
The above mentioned goals are also dependent on various, individual and widespread variables such as your current strengths and weaknesses, your character and personality, your current wealth, your pitfalls, your natural emotional equilibrium, your ability to cope with and under stress, your age, your current income and expenses, your time availability, your “distractions”, your obligations towards others. Here below we will discuss how these items interact with goals and trading in general.
Your current net worth: your goals are obviously different if you have $5k or $5m on the account. Your approach might be the same (both very disciplined for instance), but the growth targets will in most cases be more aggressive when wealth is lower. A Forex trader would also need to become more aggressive to reach targets such as trading as a full-time profession (of course still within maximum risk boundaries or else the entire trading capital is at risk).
Your risk / trading capital as a % of the entire capital: trading must be done with risk capital – this is a golden rule that has no exception and applies for everyone. Every Forex trader must feel free to take risk; otherwise the endeavor is bound to fail. But obviously, there is a substantial difference between risking a small part of your savings as risk capital or a larger part of your savings – even though earmarked as risk capital.
Your time availability: a Forex trader that can invest 8 hours a day in the process of trading can invest more energy and time into becoming a better trader, and also capitalize on smaller time frame moves which increase the number of opportunities, than a trader that spends 20 minutes a day. The learning curve of the latter is steeper. But there are also risks connected to highly active traders such as over risking and over trading – both can be very detrimental to the trading account. Most important is to dedicate a consistent time effort into trading – no matter they level is – as this will allow traders to experience and learn from the process.
Your personality and character: some of these items could already be mentioned in the strengths and weaknesses section. In general though, the goal is to get an idea of your personality and character. A person that is very precise might prefer a more non-discretionary method of trading. A leader type of personality might like to trade in a group with other traders. A calm personality might give preference to a relaxing trading environment with little disturbances, etc. Entrepreneur types might turn out to bigger risk takers than people with more of a calm personality. This could have various impacts: the leader type could achieve higher rates of growth but also be more susceptible to larger draw downs and over risking. Optimists and enthusiasts might have lots of energy but act impulsively and lack the discipline in following a trading plan. The link is here: http://winnersedgetrading.com/personality-and-strengths-in-forex-trading/
Your current income and expenses: the balance between the two will be vital in understanding how much a trader needs to earn in relationship to their capital to stay afloat (an income that at minimum meets the expenses). The lesser the expenses, the easier it is to become financially break even, or put money aside to save and reinvest, and potentially grow the trading capital as well. Heavy spenders on consumer goods, which give little to non-residual income give a high impact blow to the financial outlook: they sometimes even cost money to maintain as well. Obviously, the lighter the expenditure footprint, the easier it will become to multiply wealth, the easier it becomes in succeeding in trading, and reaching financial goals in general.
Your emotions & ability to cope with and under stress: it is important to measure what kind of emotions and emotional levels a Forex trader has and reached when trading. It is crucial to understand if and how the stress impacts all aspects of trading and whether any pitfalls or weaknesses are associated with that. Anxious traders might have more problems with displaying patience, whereas patient traders might want to “override” their trading plan too often. Traders must realize that emotions drive the market, and they also drive our trading decisions. Realizing if and how they impact our trading plan, and then making an action plan to improve those elements via evaluations is the best practice.
Your age: whether you are 21 years old and studying or 64 years of age and close to retirement, obviously both groups will have different desires, expectations, strengths, weaknesses, pitfalls, and goals. A younger person might trade more aggressively due to inexperience. An older person might aim for earlier retirement, whereas as 40-50 year old might want to avoid the hassle of the life at the office.
Your distractions and time commitments: a trader needs to create an environment that allows them to focus on their trading when they are trading. Unfortunately, being confronted with random tasks during trading will not help funnel the focus and concentration needed for optimal trading decisions. Whatever the chosen time commitment, make sure it is quality time – in majority of the time at least. Also, make sure that you are not over committing yourself to too many things. It is great to be ambitious but if you want to become the best Forex trader that you can be, you will need to commit to the process and invest sufficient resources into the success of your trading business. In this example, a retired person could have more time to dedicate to trading and this might be a great advantage of that situation. A person that has a very busy and demanding full-time job might have the problem of not having sufficient time to invest in trading. A boss might have little time, but could have more flexible time than his employees (as he has nobody checking over his shoulders) and be able to be more active in trading.
Knowing your emotions during stress, your characteristics & personality in general, your financial plan, your realistic time availability, etc are crucial stepping stones for future success. The reason is because without proper syn-energy between your trading plan and your mental framework, the less chance of success. Forex traders must build a trading plan that is executable within their trading psychology.
STEP 3) ACTION STEPS
a) Situational analysis
The best is to write down all of the above mentioned parameters on paper or in your pc and think thoroughly how they impact your Forex trading.
Other steps are:
– Judge what your beliefs are of the market.
– Judge the current mindset about trading, market, yourself, business, and opportunities.
Read more here.
This will be your situational analysis.
a) SWOT analysis and strategies
The best way to continue is by evaluating oneself via:
– SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) .
Knowing your strengths and weaknesses & pitfalls: this will depend from person to person and needs to be tailored made and fitted to each trader. Each Forex trader will have their own strengths which they need to capitalize on. Each Forex trader will need to minimize the impact of their weaknesses and pitfalls. Knowing what those strengths and weaknesses & pitfalls are, how they emerge during trading, and how they impact the trading result is of crucial. A Forex trader with patience could be well equipped for swing trading. A Forex trader that considers himself or herself as greedy might find the trailing stop a useful technique, etc. A Forex trader that gets excited my price action and lured into making trading decisions without any analysis and preparation would want to work on a precise trading plan that emphasizes simplicity in execution. http://winnersedgetrading.com/personality-and-strengths-in-forex-trading/
The SWOT analysis will take the information from the situation analysis and will allow you to prioritize your strengths, weaknesses, opportunities and threats. Then it will also give you’re the ability to create strategies that best make use of your current situation and strengths, whereas limiting the impact of any weaknesses.
This will later on become part of the trading plan.
Is there anything you wanted to add to the article? Do you think that these factors are important? Which ones are most important to you? Let us know down below in the comment section!
Thanks and Good Trading!
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