Developing the discipline to stick to your plan
After coming up with a trade plan that works for you and one that has held up in back testing and forward testing, you’d still need to work on the discipline to follow your trade rules. This is much easier said than done and constantly requires an assessment of trading psychology.
Sticking to your plan is much easier when you trust it, and this naturally comes when you’ve built the system up yourself, based on your own preferences and risk profile. Positive results in back testing and forward testing could also help you maintain trust in your system, even though past performance doesn’t always guarantee future results.
When you find yourself doubting if your trade plan will work, put it up to the test in real market conditions to see if you need to make any improvements. If you haven’t settled on a currency pair to apply the trade plan to yet, you can run tests on various currency pairs and see which one the plan works best with. When you’ve identified this, you can feel more assured that the plan can be able to generate decent profits.
If you’re not very confident with your trade plan yet, you can also scale down your risk while you are starting out. If you normally risk 1% on a single trade, you can cut it in half first before risking the full amount when you’ve built enough confidence.
Encountering a few losses through your trade plan might lead you to doubt its effectiveness. Instead of letting this doubt stay in your head, delve into the details of why the trade turned out to be a loss. If it was a result of unforeseen market conditions, then you should remind yourself that you should let the law of averages work in your favor and that your system aims to garner consistent profits in the long run.
If you follow your trade plan sometimes and don’t follow it during other instances, you could have a tough time monitoring your trade performance and gauging if the system is profitable or not. Your decision-making will be haphazard and will lack a framework that can guide you in understanding and taking advantage of forex market moves.
Of course there may be times when you panic and suddenly abandon your trade plan when the market has a surprise up its sleeve. When this happens in a few instances only, you shouldn’t take it too hard on yourself. We are human and we’re liable to make a few mistakes here and there. When you find this happening very often though, you should remind yourself that discipline is key to consistency and that you might need to make a few steps to work on your mindset.
Just as professional athletes go through training drills in order to get better, you should also maintain this kind of discipline in working to improve as a forex trader. Even if repeating certain processes may seem boring at times, remind yourself that this is an investment in building your trade discipline and expertise.
Next Article: Reasons why traders abandon their plans