Saturday, December 27, 2008

Trading Plan for currency Trading.

Your trading plan consists of your entry , stop loss exit , profit target exit and risk to reward ratio.You have a set up you trade and entry trigger signal.Before entering itself you should plan for two exits. One is a stop loss exit and the second is a profit target exit.Your risk to reward should be 1:2.5 for swing trading in my opinion.Imagine you have an entry signal where your stop loss need to be placed 2 dollars and your target is only 1 dollar. This is a high risk condition and you should pass on the trade even though you have an entry signal. You should wait for low risk entries.When a trader becomes risk oriented that is the stage in which currency trader can pull out consistent profits from the market.If you have multiple trades you can plan for two profit target exits one with 1:1.5 risk to reward ratio and move the stop loss to entry point for the other remaining position to let the profits run.By moving the stop to entry level you have cut your lossess. Here you have incorporated all the three simple rules of trading in your plan ie 1)Cut your lossess 2) Let the profits run 3) Trade selectivity.You have become risk oriented and you take only selected low risk entries.Muraleedharan

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