Now that the importance of having a complete trade plan has been discussed, along with the necessary components, it’s time to take a look at the other factors to consider when drafting your strategy.
1. Forex Trading Experience
First is your level of experience in forex trading. When you are just starting out and learning the basics, it is recommended that you stick with the simple indicators first and the default settings. There is no need to delve into the mathematical or statistical details regarding how a particular technical indicator was derived. What is important is that you know what the levels stand for or what kind of signals it generates.
More experienced traders can look into adjusting the indicator’s parameters or playing around with more advanced settings. Having a few years’ worth of experience in the forex market can also make you more comfortable with complex risk management strategies, such as using trailing stops or adding positions. However, beginner traders might want to start off with standard sizes for stops and profit targets first.
2. Trading Time
The next factor to consider is the amount of time you can spend trading. Not everyone can monitor the markets all day or regularly, which means that this must be accounted for in constructing a trade plan. Some part-time traders prefer a scalp trade strategy, which allows them to open and close trades in a span of a few hours, without keeping positions open overnight. Others prefer a longer-term approach that just requires them to check up on their trades every now and then.
3. Currency Pairs to Watch
Another factor to consider is which currency pairs to apply your trade plan to. There are plenty of choices in the forex market, but you have to consider which ones are more active during your trading schedule. For instance, if you can be able to trade during the Asian session, then you might want to focus on yen pairs or AUD and NZD pairs. If you are trading during the London session, then EUR and GBP pairs could give you more price movement during those hours.
In addition, trade plans that are more appropriate for trending market environment could be applied to dollar pairs or actively traded crosses. On the other hand, a trade plan that can withstand volatile market moves or one that is geared to catch large price swings can be applied to exotic crosses. Trade plans that revolve mostly around inflection points or psychological levels might be more appropriate for yen pairs.
At the end of the day, there is no hard and fast rule to determine which currency pair you should focus on or which technical indicators you should use or which time of the day you should trade. What’s important is that you work with what suits your preferences, schedule, personality, and level of experience and that you are able to make adjustments along the way.