In my opinion, when FX trading, there are specific management protocols that we as traders need to respect and follow religiously in my opinion. The overview of all things trading is the all-embracing ACCOUNT MANAGEMENT.
From my perspective, I like to see and break down ACCOUNT MANAGEMENT as follows: -
- TRADE PLANS / CREATING A TRADE PLAN / WHEN TO TRADE etc.
- TRADE STYLES
- BROKER ACCOUNT MANAGEMENT
- RISK MANAGEMENT*
- HEAD MANAGEMENT (TRADING PSYCHOLOGY) *
*RISK and HEAD MANAGEMENT are both covered separately in this section of the website under a separate dropdown menu tab.
CREATING A TRADE PLAN(S):
It is often said, and I have said this myself on numerous occasions in different circumstances that traders should plan their trades and trade their plans.
I will be honest; when I started FX trading, I did not have a TRADING PLAN. I really did not see the need for one…I was wrong.
Trading Forex will be more successful for you as a trader if you have a proper plan in place. The classic quote that is often used when referring to not having a TRADING PLAN is “Failing to plan is planning to fail”.
Trading plans are really a lot like insurance. You don’t usually want it until you’ve faced a catastrophe. But after that catastrophe, which maybe was a huge loss on a single trade, or worse, a margin call from one really bad trade, as a trader you probably recognize that something needs to be done.
Regardless of how you get there, just the fact that you actually arrive at the destination of realizing that a TRADING PLAN is not just a “nice to have”, but sometimes a necessity, is generally a positive development in the journey / career of a Forex trader.
The bottom line is a TRADING PLAN is a must.
Here is one very basic reason for having a plan: New traders sometimes barely even have the actual reasons for entering a trade. Imagine, that you were planning to loan money to a new business as an investment. Could you picture yourself lending money to a person without a business plan when they said that they were going to start their business based on “their gut?” Obviously, no one should ever start a business by relying on his or her gut alone. However, plenty of new traders start trading in exactly that manner.
So, what should you include in your TRADING PLAN?
A very simple approach is to look at it in four sections: WHAT, HOW, WHEN and WHY. My first TRADING PLAN was along these lines and was short and to the point. As time has elapsed since I started trading my own plan has now reached a staggering 21 pages including all inserts on profitability, plus how I trade with my various brokers, various TRADE STYLES and then finally my Marketing Plan.
WHAT: (What type of trader are you?)
I think that the initial question that you should ask yourself is “What type of trader am I?’ If you are a new trader, you may not know yet, bear in mind the TRADING PLAN is a fluid document for many things. As you develop as a trader your style will become apparent and you can update your plan accordingly.
The benefit from knowing what type of trader you are is quite straightforward. Defining what you are gives you a comfort zone. If you take a trade that is outside your definition and it loses money it serves as a reminder to you that you were not trading within your comfort zone.
The following is a very simple chart of trader types:
TRADER TYPE: CHARACTERISTICS OF THE TYPE / STYLE:
SCALPER: Holds trades for a few minutes to maybe a few hours.
DAY-TRADER: Holds trades for less than a day (A bit longer scalpers).
SWING-TRADER: Holds trades from a few hours to a few days.
LONG-TERM TRADERS: Holds trades for at least a day and, possibly months
POSITION TRADER: Holds trades as long as needed to build & work a position
HOW: (How to manage positions / enter and exit trades?)
This is a very important part of your TRADING PLAN. Without a definition of “how” the plan is really both useless and pointless.
In this section of your TRADING PLAN you should specify how many lots you are going to trade on whatever types of trade that you are going to enter. Additionally, you specify what your risk is per trade. This will obviously be in relation to your broker account size.
My overall view here is to RIK no more than 3%-3.5% of your overall broker account balance on any one trade, or position. By doing this it tells you basically whether you should be trading Micro, Mini or Standard lots.
This section should also contain whether or not you will trade news events and what your risk will be around such events.
This area can be as complex or as straightforward as you want it to be. You can use SMA or EMA, Bollinger Bands, Fibonacci Levels or Pivot points, whatever you like, whatever is comfortable with your trading style to describe entry / exit parameters to your trading.
The benefit of detail in this section, allows you the opportunity to troubleshoot losing trades. More definition definitely means more discipline.
A very important point here is that the strategy must be your own, what you are comfortable with and not lifted / copied from another source. There is little point me providing a PDF of my TRADING PLAN because each of us is a different type / style of trader.
The above TRADER TYPES (In the “What” section) should help you in connection with outlining your “HOW”. The bottom line is to be comfortable as a trader. There is enough stress around trading without you trying to pigeonhole yourself into a type / style of trader that you are not.
In my own TRADING PLAN, I highlight my definitions of INVESTOR, SWING or BREXIT trades. I also have a specific TRADE PLAN for each TRADE STYLE I trade with (see later).
I also include when I will add to positions, how I will use the ATR and Hedging (if appropriate) on trades.
WHEN: (When will you trade?)
This is the forgotten item in most TRADING PLANS.
There is so much flexibility as a Forex trader. The markets are open from 5.00pm Eastern (USA) on a Sunday night and close the following Friday at 5.00pm Eastern (USA). The Forex market moves 24x7.
Having said that, the one thing that the Forex market thrives on is liquidity, without liquidity driving the market there is either no movement or extreme lack of liquidity movements, which personally drive me crazy.
There are principally, three trading sessions: -
THE ASIAN SESSION: - The Asian session is more often than not a lot quieter than the London and US sessions. It tends to take its lead from what happened previously in the US session.
THE LONDON (EUROPEAN) SESSION: - Liquidity definitely improves as the European markets open. The overlap from the Asian into European sessions is sometimes the most volatile and there are often very fast, very active, very volatile moves that can define momentum moves with currency pairs. As the Asian markets close the European session settles down.
THE U.S. (AMERICAS) SESSION: - as the U.S. comes on stream the volatility increases once more as the overlap between the European and U.S. traders take hold. I think it is safe to say that from 8.00am to 11.30am Eastern the Forex markets are at their most liquid period of the 24-day.
(If I had to choose a place to live to be a professional Forex trader…it has to Europe. It is as good as a 12-hour day!!)
When you trade can have a huge influence on your results. It should also define your trading strategy. High volume equals higher risk.
WHY: (This is where you write out your goals and objectives)
This is the final segment and probably the most important of all of them when you look at your TRADING PLAN. Why do you want to be a Forex trader?
More time with the family
Trading is NOT easy. It can be very difficult, and tough, and costly and most of all totally 100% frustrating at times.
Common sense does NOT always apply. The markets are what they are, not what you want them to be, or think they should be. Set your financial objectives conservatively. I was told that a target of 1% - 2% of your account balance per day is good, but this objective obviously varies depending upon the type of trader you are.
Break down your income objectives to daily targets and build up to weekly and monthly goals. Create an excel spreadsheet that you can follow and use to check performance. You should journal ALL your trades (Entry, Exit, was it a Market order, or a Limit order, time of day trade placed or triggered, position size etc.).
I have created a mini marketing document for 2020 with detailed goals and objectives. I set out based upon my thoughts and views on how the markets would perform. This is part of my FUNDAMENTAL overview contained in my TRADING PLAN. This year for me it is a substantial document.
A TRADING PLAN is NOT something you do and then file away; it should be referred to regularly to check and test your strategies and objectives; in essence a “fluid” working document.
There are great opportunities in trading currencies. You just have to be realistic and set your financial goals to be achievable bearing in mind how you trade, when you trade and how much capital you are risking.
The “WHY” serves as a reminder as to why you are prepared to go through the pain when times get difficult? The WHY helps put things in perspective relative to the bigger picture?
If you find it totally frustrating trying to achieve the goals that you set yourself personally and financially you have to re-evaluate.
Are you goals realistic?
Are you following your plan?
Looking at your results versus your plan allows a complete diagnosis of your performance.
Either you inject some self-discipline and move forward, or, you quit trading. In my opinion and this is the hardest lesson that I have had to learn, there are three things when trading that you must use every day: -
MY TRADE STYLES and TRADE MANAGEMENT:
I have fine-tuned my approach again by developing my outlook on POSITION TRADING. I can now break my trade styles into three categories of trades: -
(CORE) POSITION TRADES
TRADE STYLE OVERVIEWS:
Whilst I will trade a number of TRADE STYLES in a calendar year, fundamentally I am a long-term POSITION TRADER
Longer-term outlook trades with entries via LIMIT ORDER into which I look to stack multiple small sized individual positions. This gives me opportunities to tactically add additional trades at key levels and to take profits by removing trades whilst maintaining a “(CORE) POSITION”.
This approach, with smaller positions and wider stops keeps me away from the “MARKET NOISE”. My STOP LOSS levels are based on Monthly ATRs (Average True Ranges) and sometimes maybe beyond for tactical reasons. Sometimes I may HEDGE my open positions if I view this to be tactically advantageous.
All trades are by LIMIT ORDER entries and are based upon a medium-term trading outlook, usually from a few weeks to several months in duration. Mostly they are single position trades, although there are exceptions from time to time. I use both the Weekly and Monthly average true ranges when setting my stop and profit levels together with technical market confluences.
These are “AT MARKET” opportunist trades based upon the current market pricing, for a specific potential profit opportunity. Usually a “DAY TRADE” that I am looking to develop into a SWING TRADE.
1. FLASH TRADES (FLA):
TYPICAL FX PAIRS TRADED: No exceptions
TRADER SUTABILITY: Traders who are 100% close to their trading screens. Full-Time traders.
PROJECTED TRADE TIME-FRAME: Very short-term usually from 5 -30 minutes maximum. But this can drift to hours, maybe a day or to if volatility dries up.
ENTRY & EXIT GUIDELINES: Via twitter @weeklyfxpremium. These are opportunist trades and cannot be predicted in most cases unless they are anticipated ahead of major news events.
RISK / POSITION SIZES: Single trades with trade sizes of 50%-100% of my RISK tolerance limit. Looking for gains of 30-50 pips based upon directional / momentum moves.
STOP LOSS LEVELS: These would usually be between 30-50 pips based off either previous levels of support and resistance or a close Fibonacci level. However, should the trade develop trend and momentum and maybe possibly have the opportunity to become a SWING TRADE, I would protect some profits and stretch my target price objective.
TRADE MANAGEMENT: I normally do NOT have multiple trades in operation with FLASH TRADES. They can best be summed up as opportunist trades, for this reason they are NOT planned in advance, they are more based on inter-day market opportunities.
2. RADAR TRADES (RAD):
TYPICAL FX PAIRS TRADED: All pairs qualify; no exceptions
TRADER SUITABILITY: All Traders who have reasonable access to check screens on several occasions during the day. Entry and exit levels are pre-determined from limit order set ups.
PROJECTED TRADE TIME FRAME: Initially day trades that I am looking to develop in SWING trades of about a 1 or 2 week duration... maybe longer.
ENTRY & EXIT GUIDELINES: Entries will be by pre-defined LIMIT ORDER set ups. These are based initially on Pivot Points, Fibonacci Levels, Chart Patterns, basically, any combination of indicators that provide a “high probability’ trade set up. Initial STOPS and LIMITS will be fairly conservative, depending upon market conditions at the time the set-up is placed. In normal trading conditions, I would expect to update these to protect profits should the trade develop and gather traction.
RISK / POSITION SIZES: Usually a single trade approach. The initial trade set up size will be c.15% - 50%. If the trade develops, I will add a secondary position to bring the trade closer to full size.
STOP LOSS LEVELS: Usually based off areas of previous price confluence of key Fibonacci levels. I usually work through from the weekly chart down to the 2-hour chart to establish my key levels of entry and exit. Based upon a pip number to give guidance on the size of my stop loss levels, a rough rule of thumb would be c.150 - 250 pips, although this may vary by pair traded, time of trade placed and the pairs liquidity depth. I am a great believer with Average True Ranges (ATR's) as a guideline. With RADAR TRADES the weekly ATR is an initial guide although confluences of previous buyer / seller levels of interest I believe offer better trading opportunities.
TRADE MANAGEMENT: I will from to time have multiple trades in operation and with limit orders set to trigger as well with this TRADE STYLE. Depending upon the currency pair, the size of my trade and the number of trades will vary. My goal is always smaller position sizes with wider stops to eliminate the market noise and provide me with greater flexibility to manage the open position in play.
3. POSITION TRADES (POS) / CORE POSITION TRADES:
TYPICAL FX PAIRS TRADED: No exceptions, although the preference would be for pairs with decent liquidity.
TRADER SUTABILITY: These are my longer-term trades suitable for traders with limited “Trade Screen” access during the day. These trades would ideally suit PART-TIME traders, those looking to add an additional income stream to their household etc.
PROJECTED TRADE TIME-FRAME: Usually anything from at least 3 months to multiple years in duration.
ENTRY & EXIT GUIDELINES: Entries are by pre-defined LIMIT ORDER set ups.
RISK / POSITION SIZES: Usually, a multi-trade approach with the initial trade sizes being between 10% -25%. It really depends on the currency pair and the trade opportunity itself.
STOP LOSS LEVELS: These will be based on the Monthly Average True Range (ATR), but this is very flexible based on my anticipated trading timeframe. On occasion, some trades will be based upon a 3 Month Average True Range (ATR) figure, and this would be advised at the outset of the trade. These are long-term trades, small position sizes with very wide stop loss levels. LIMIT LEVELS: These will be chosen by a combination of extreme Fibonacci levels, previous annual highs. If required, I will consider HEDGING to keep these CORE POSITION trades in play.
TRADE MANAGEMENT: POSITION trades are by nature taking a very long-term view. My POSITION TRADE style will have multiple “LIVE” positions and multiple “LIMIT ORDERS” pre-determined and ready to trigger. There could be up to 10 maybe even 15 trades combined between LIVE and LIMIT ORDERS.
BROKER ACCOUNT MANAGEMENT:
You need a BROKER to facilitate trading. There are many, many options available in most regions of the world and there are several options about what type of account to open; MT4, MT5, Trade Stations or cTrader etc...
You need to take advice individually for your own needs and requirements. This section is not about helping you choose what type of account, what type of broker, this is to let you know what I do.
I operate with 7 x LIVE broker accounts. Why?
I have found it since launching a fee-paying subscriber service to separate my brokers by specific TRADE STYLES, specific currency pairs etc.
It goes without saying the more accounts the capital one has tied up. I have re-allocated capital into my brokers for 2021 as detailed below: -
BROKER 1 - FLASH TRADES
BROKER 2 – RADAR TRADES (USD MAJORS except USD/JPY)
BROKER 3 – RADAR TRADES (All JPY Related Pairs)
BROKER 4 – RADAR TRADES (Cross Rate Pairs)
BROKER 5 – POSITION TRADES (GBP Related this was facilitate the transfer of BREXIT TRADES from 2020)
BROKER 6 – POSITION TRADES ( AUD/NZD & EUR/CHF only)
BROKER 7 – POSITION TRADES
BROKER 8 - TEST STRATEGY ACCOUNT
BROKER 9 - TEST STRATEGY ACCOUNT
My account balances are being re-distributed in line with my trading expectations via my PIP PROJECTION.
The key from my perspective is to have as much capital as you need to operate without the risk of margin calls which, have now been set much higher by many brokers following the EUR/CHF peg debacle a few years ago.
I now trade with basically no leverage at all and my trading time horizon is very, very long-term with my POSITION TRADES.
Whilst I am goal orientated and targeted by nature, returning a specific income each year is not mission critical; trading longevity is my goal.
The details of your broker objectives should be included inside your trade plan.
The Pip Accumulator