When it comes to important aspects of our lives we always make sure to have a plan in place. We pore over the situation, make preparations and contingencies and make sure that there is a system in place to ensure that everything is working according to plan. We make plans for building a house, for a wedding, for a birthday party. We even make plans for our kids’ first few days in school.
But don’t you think it’s strange that there are forex traders that do not make plans for something as important and financially risky as currency trading? But it’s the truth; there are many forex traders who think they can do well in forex trading without a plan or system in place.
A forex trading system can be considered your masterplan for trading – without it you are more than likely to fail – and who wants that? An effective forex trading system will include a number of elements that will help guide you in your every trade. It contains your trading goals, your entry strategy, the various ways you want to manage your trade, the risk management factors you’ve thought of, account management details and, of course, your plan. If you have one already in place then good for you. But if you still don’t have a forex trading system then there’s no better time to make one than today.
The following are the various parts of a good forex trading system.

Goals
The goals you set in your forex trading system provides you with the focus that you need so that you won’t get deterred by failures or setbacks in your trading. Your goals help you crystallize the reason you are trading. Although general goals are helpful, making them as specific as you can is far more effective in giving you the impetus and drive that you need in your journey as a trader. For example, instead of saying “I want to make money trading” make it specific by saying “I want to double the funds in my account within the next two years.” You can also set goals that are more effects-centric for example, saving up for your children’s school expenses through the money you earn from trading.
You can make very detailed goals by establishing one-year, two-year and five-year goals. The exact time frame is up to you.

Entry Strategy
Your entry strategy is that moment where you are on the brink of the potential to profit. Your entry strategy tells you the point and conditions where you will start a trade. There are many entry strategies you can use – a particular news announcement, technical signals, moving averages, etc. Whatever entry strategy you use, make sure that it is one you are quite familiar with so you won’t have to worry about learning as you go along because it’s potentially disastrous.

Trade Management
While an entry strategy is very important, it is how you manage an ongoing trade that may spell the difference between a good profit or a heart-breaking loss. Good trade management tells you when to make an exit – whether you profit or lose. Knowing when to go out while earning requires more discipline because the potential to get greedy is there but a good exit point should always be in place. Of course, exiting to minimize loss is arguably the best way to mitigate losing a lot of money from your trade. Knowing what to do while the trade is in place and also knowing when to exit should be a staple of a forex management system and one you should always follow.

Account Management
In this section of your forex trading system you should outline what you will do with your funds. Do you only maintain a certain amount in your trading account to trade with our do you exponentially increase the amount based on the profits you gain from previous trades? Discipline is needed when working on this section because it involves money and as many people know, money has a tendency to blind people into doing something stupid.

Risk Management
A good risk management plan in place will help you manage not just your profits but also the amount of loss you can safely absorb. Risk management encompasses all aspects of your forex trading system. It is the emergency exit of your plan – the one that tells you the amount of danger you can expose yourself to before it becomes too risky for you. It takes a certain level of maturity to handle risk and know when to quit. Many new traders have a gung-ho attitude about risk and think that if they incurred a loss, they should immediately find a way to win it back.

Trading Plan
Your trading plan is the umbrella under which all of the other elements exist. The trading plan is where all these elements are put together to work seamlessly.

About The Author
This is a guest post by the famous Forex expert Mario Singh. You can read his opinions on FX News at his website Askmariosingh.com.

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