As obvious as it may sound to plan your trades before, the reality is that many traders don’t.
With some strategies, momentum and/or the alignment of combinations of positive indicators dictate whether a trade should be entered or exited. However, the trade is not preplanned. This happens a lot.
For traders who follow this concept, trading is something they try to execute on the level of intuition. They see the opportunity in the market, they understand, they have a bias, and they enter without proper planning.
Here at The5ers, we’ve seen many traders, even those trading price levels, plan their trades. We’ve also seen many traders that don’t plan the trade at all.
In these situations, traders knew the entry and stop loss but not necessarily that they were ready for a multitude of scenarios that could have occurred while they were in the trade or while the price was going towards their entry level.
Not planning the trade ahead of time is an epidemic among many traders, wishing that trading would be more intuitive than an analytic profession.
When we say plan your trade, we mean that you need to plan the trade from many aspects in order to be absolutely ready for everything that can happen.
Get your free trading plan PDF
For starters, the price can come to your level but not in a convincing way.
This is why you shouldn’t be binary about your entry-level. If you won’t enter just because the price comes to your level, it’s time to consider more. How did the price get there? Was it convincing that it would do what you expect it to do? What is the proof? What are the disqualifications?
When you’re planning your trade, plan for the approach of price and everything that might have happened prior to your entry in order to give yourself a solid green light to enter your trade.
You should also define what will be the disqualifying events that tell you to abort your plan because, as we know, things do not always go according to plan.
Here’s an important concept we’ve mentioned before – the market is not a mechanical matrix of values. It is dynamic, and this dynamic plays a role.
You need to understand the context of a price movement in any kind of system you’re using. Whatever it is, you should have a broad perspective and context to the story and narrative of the market before entering.
For example, like with us humans, when we say no, it can imply we don’t want to do something, or when said in a different tone, it can be said as more of a teasing way, inviting disobedience.
The market also has a variety of dynamics. To give you a go or no go.
Consider the dynamic.
In order to prepare, you have to map all the possible dynamics. Give yourself a rule book for each and every trade that you plan according to your analysis.
Once you enter the trade, it’s not the end of your work.
Preplan the scenarios that may happen after you’ve entered. Consider how the price is moving after entry and look around for things that approve or disprove your bias over and over.
Reassess the situation constantly to see if your analysis is aligned with the market. In your planning, you should have outlined as many scenarios as possible, which will give you an easy way to decide if your trade is qualified or not qualified.
If you do all of these things and you’re consistent in planning your trades, you’ll have an easy execution plan for any situation that arises.
But beware that because you’re human, you probably won’t cover all of the scenarios. A good and thorough job will give you coverage for just enough events, so you don’t set yourself up for trouble.
New events that aren’t covered will join your scenario resolutions toolbox once you’ve weathered them.
Once your trade is on the market, and you’re exposed to volatility, here are 4 situations that can happen:
Within these 4 situations, try to classify which events will go to each. For example, what price action should happen in accordance with these events. If you cut all scenarios to these 4 situations and have an action plan for each, you’ll be well prepared to manage your trade properly and efficiently according to market dynamics.
Every trader should understand that knowing the price for entry and exit is not enough in the forex world.
You need to know what scenarios can happen along the way and prepare for them.
Do not trade only with intuition. You must have a trading plan in which you write down scenarios that have happened to you in the past so that you know how to deal with them in the future.
The Forex world is wild, and you should try to reduce the risk as much as possible!
If you want to receive an invitation to our live webinars, trading ideas, trading strategy, and high-quality forex articles, sign up for our Newsletter.
The5%ers let you trade the company’s capital, You get to take 50% of the profit, we cover the losses. Get your trading evaluated and become a Forex funded account trader.Get Your Forex Funded Trading Account