Why do you need a trading plan? Is it necessary for your trading success? How can you ensure that you have a good trading plan? If you have a trading plan, it is similar to reading a map where you follow the directions so you can arrive safely at your destination. After all, it is much better to have something to look at in times of hardships.
Additionally, a trading plan gives you a framework that will guide you in identifying the right market to trade in MetaTrader 5 and how you can take profits while minimizing the losses. This simple plan works so great that it is even capable of instilling discipline in a trader. Without emotion in trading, you get to make a sound decision that can benefit you in the long run. But if you don’t have discipline, you will end up trading emotionally. Greed, fear, and hope will create havoc and affect your trading decisions. Planning your trades keeps you composed despite the circumstances in the market.
The first thing that you should think about is the type of trading that you want and what suits you best. For example, if you want to become a day trader, you must only hold your positions within the day and avoid overnight trading because it will only install additional costs. Day traders are tasked to constantly watch the market for possible short-term trading opportunities that may generate a profit. Overall, day trading is exciting but can be time-consuming. Therefore, if you don’t have the time, day trading is not the one for you.
There are also swing traders who are ready to initiate a trade when it goes in the opposite direction of the underlying trend. They hope to gain profit by the time the market corrects following a significant move.
Position traders are another type of trader that prefers long-term investments. They buy company shares and hold them for years. They don’t use leverage and margin.
Since you already have a trading plan, it’s time to know more about money management. After you identify your risk capital, this next step is quite easy to determine. When you trade on MetaTrader 5, never use the money intended for your daily spending or other basic necessities like emergency funds and mortgages. Your risk capital should be the money that you think you can live without.
After deciding the amount you are capable of risking, it is time to divide it into smaller packages. You don’t need to put everything in one trade. You need to diversify. In fact, you should only risk 1% of your capital in every trade and a 3% daily cap on your losses. Remember that you cannot eliminate losses but you have the power to control them.
Risk management comes after deciding the amount of money that you will use in trading. Since risks are inevitable in trading, risk management will hold up huge losses and keep your account from getting bankrupt.