Forex trading depends very much on how the trading week was planned. If a plan was made, traders must execute it properly. Any trading plan must include both technical and fundamental analysis. Technical analysis deals with interpreting technical indicators or trading theories for forecasting future prices. It is said that technical analysis tells where the market goes. Fundamental analysis, on the other hand, tells the reason why the market moves.
Any trading plan should start over the weekend. It is over the weekend when the trader looks at the bigger time frames on the currency charts to spot the solid trends, if any, and where are the places to enter a trade. This gives an idea about the currency pairs to trade in the week to come. No one can trade all the currencies on the Forex dashboard. For this reason, it is important to trade only the ones that have the biggest chances to give a profitable setup.
The next thing to do is to look at the economic calendar for the week ahead. This tells much about the risk to be taken and the currency pairs to be traded. For example, let’s assume you are bullish on the EURUSD pair and expect the pair to move around two hundred pips next week.
However, next week is the NFP (Non-Farm Payrolls) week. This means that chances for the market to move until the NFP is released on Friday are really slim. If the trader goes into a trade on Monday and expects the two hundred pips to come until Friday, this is not going to happen. If it does, it will be only by chance. The reason is that most of the times no one in the trading arena takes any chance until the big, important news is released.
A proper forex guide should start from incorporating all the elements in a trade. Starting from the volume to trade and ending with the proper risk-reward ratio, all things matter. A realistic risk-reward ratio is one that has a 1:2.5 or 1:2 ratio. It means that for every pip risked, traders look for a 2.5 or 2 pips profit.
Of course, that bigger risk-reward ratios can be used, like 1:10 or even 1:20. But such ratios are not realistic. The market spends most of the time in consolidation and rarely travels that much. This is why traders should avoid taking unnecessary risks.
Such a risk is to keep positions open over the weekend. I’m not saying that traders should not carry trades over the weekend. I’m just saying that this should be avoided as much as possible and, if they keep trades over the weekend, they must be sure to have plenty of margin in the trading account.
Based on what was mentioned so far, a trading plan for the week ahead should consider:
- The currency pairs to trade. Pick the ones that are expected to move the most in the week ahead.
- The economic events in the upcoming week. Consider the red events and try to have as little exposure as possible when they are released.
- A proper risk-reward ratio. Look for a realistic return. If stellar ratios are expected, change the time-horizon for your trades. It makes no sense to open a trade at the start of the week and close it before the weekend comes.
- Take what the market is giving. Don’t overtrade an account and take what the market is giving. Understand who market participants are and what moves prices.
Money management and risk management is the thing that keeps a trader safe and allows the trading account to grow. Without a proper money management system, traders are guessing. When you guess, you’re not trading, and any success is random.
Last but not least, if you bothered to make a trading plan, then stick to it. Execution is the thing that traders fail the most at.