Forex scalping is a popular trading strategy that is focused on smaller market movements. This strategy involves opening a large number of trades in a bid to bring small profits per each. As a result, scalpers work to generate larger profits by generating a large number of smaller gains.
Learn how to create a successful trading plan and put it into action. With a smart plan, you’ll have guidance on which market to trade, when to take profits, when to cut your losses, and where other opportunities could exist.


What is Trading Plan
A trading plan is a comprehensive decision-making tool for your trading activity. It helps you decide what, when and how much to trade. A trading plan should be your own, personal plan – you could use someone else’s plan as an outline but remember that someone else’s attitude towards risk and available capital could be vastly different to yours.

  • Personal risk management rules
  • Your strategies
  • Steps for record keeping
  • Your attitude to risk
  • Your trading goals
  • The time commitment you want to make
  • Your available capital for trading
  • Your motivation for trading

Why do we want a trading plan?

We want  a trading plan because it can help you make logical trading decisions and define the parameters of your ideal trade. A good trading plan will help you to avoid making emotional decisions in the heat of the moment. The benefits of a trading plan include:

•Better trading discipline: by sticking to your plan with discipline, you could discover why certain trades work and others don’t
•More objective decisions: you already know when you should take profit and cut losses, which means you can take emotions out of your decision-making process
•More room for improvement: defining your record-keeping procedure enables you to learn from past trading mistakes and improve your judgment
•Easier trading: all the planning has been done upfront, so you can trade according to your pre-set parameters

How to make a trading plan

There are seven easy steps to follow when creating a successful trading plan:

1•Outline your motivation
2•Decide how much time you can commit to trading
3•Define your goals
4•Choose a risk-reward ratio
5•Decide how much capital you have for trading
6•Assess your market knowledge
7•Start a trading diary

Outline your motivation 

Figuring out your motivation for trading and the time you’re willing to commit is an important step in creating your trading plan. Ask yourself why you want to become a trader and then write down what you want to achieve from trading.


Decide how much time you can commit to trading
Work out how much time you can commit to your trading activities. Can you trade while you’re at work, or do you have to manage your trades early in the mornings or late at night?

If you want to make a lot of trades a day, you’ll need more time. If you’re going long on assets that will mature over a significant period of time – and plan to use stops, limits and alerts to manage your risk – you may not need many hours a day.

It’s also important to spend enough time preparing yourself for trading, which includes education, practising your strategies and analysing the markets.


Define your goals
Any trading goal shouldn’t just be a simple statement, it should be specific, measurable, attainable, relevant and time-bound (SMART). For example, ‘I want to increase the value of my entire portfolio by 15% in the next 12 months’. This goal is SMART because the figures are specific, you can measure your success, it’s attainable, it’s about trading, and there’s a time-frame attached to it.

You should also decide what type of trader you are. Your trading style should be based on your personality, your attitude to risk, as well as the amount of time you’re willing to commit to trading. There are four main trading styles:

  • Position trading: holding positions for weeks, months or even years with the expectation they will become profitable in the long term
  • Swing trading: holding positions over several days or weeks, to take advantage of medium-term market moves
  • Day trading: opening and closing a small number of trades in the same day and not holding any positions overnight, eliminating some costs and risks
  • Scalping : placing several trades per day, for a few seconds or minutes, in an attempt to make small profits that add up to a large amount

  • Choose a risk-reward ratio
    Before you start trading, work out how much risk you’re prepared to take on – both for individual trades and your trading strategy as a whole. Deciding your risk limit is very important. Market prices are always changing and even the safest financial instruments carry some degree of risk. Some new traders prefer to take on a lower risk to test the waters, while some take on more risk in the hopes of making larger profits – this is completely up to you.

It is possible to lose more times than you win and still be consistently profitable. It’s all down to risk vs reward. Traders like to use a risk-reward ratio of 1:3 or higher, which means the possible profit made on a trade will be at least double the potential loss. To work out the risk-reward ratio, compare the amount you’re risking to the potential gain. For example, if you’re risking $100 on a trade and the potential gain is $400, the risk-reward ratio is 1:4.

Remember, you can manage your risk with stops.


Decide how much capital you have for trading
Look at how much money you can afford to dedicate to trading. You should never risk more than you can afford to lose. Trading involves plenty of risk, and you could end up losing all your trading capital (or more, if you are a professional trader).

Do the maths before you start and make sure you can afford the maximum potential loss on every trade. If you don’t have enough trading capital to start right now, practise trading on a demo account until you do.


Assess your market knowledge
The details of your trading plan will be affected by the market you want to trade. This is because a forex trading plan, for example, will be different to a stock trading plan.

First, evaluate your expertise when it comes to asset classes and markets, and learn as much as you can about the one you want to trade. Then, consider when the market opens and closes, the volatility of the market, and how much you stand to lose or gain per point of movement in the
price. If you’re not happy with these factors, you may want to choose a different market.

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