Developing the quality of a professional and successful forex trader is not an easy task at all.
The whole process requires not only a lot of time and knowledge but also a considerable amount of dedication that will keep the trader even in the most difficult moments (such as a longer period of losses) constantly stimulated to stay in the trading circles.
In order to become a successful trader, it is very important to strictly adhere to the chosen trading strategy, whether anything is really going on (good strategy will have established procedures even for the worst possible cases-> deep drops in the market, etc.). The Forex market is so fast and volatile that it is up to you to think about each subsequent trading step as if it were the last one.
Trading without a good strategy is like a lottery bet and the easiest way to lose the invested financial capital. Unfortunately, even the best-looking trading strategy is not omnipotent, so there is a need to have a backup plan that includes a backup trading strategy (entries, exits, and various market orders) that will fill in the gaps of the primary trading strategy.
As seasons alternate on Earth, different trading periods alternate in markets. Professional traders use different primary trading strategies according to these periods, and when the market demands it and there are no other options, they activate their backup plan, where traders usually deploy their backup trading strategies.
Example : Different phases of growth may occur on the market (different periods). At the low-volatility growth stage, traders will use, for example, a primary trading strategy, but at a stage with high price fluctuations and volatility, this strategy may be inadequate, sometimes losing, and vice versa.
The main steps needed to create a backup trading plan (strategy):
The first and main step is to admit that, despite highly disciplined trading, the primary trading strategy may fail. It looks easy, but it's really harder than it seems!
It is mainly related to the ego and the functioning of today's society, which is set to expect from people the best and flawless results, and we often refuse to admit that our plans and strategies would not work.
Create a backup plan
Creating a backup plan does not only mean creating a backup strategy, but a plan is a set of activities to help achieve a goal. Therefore, a backup plan is such a plan where the trader precisely determines under what circumstances certain measures will be taken. The easiest, and perhaps somewhat ironic, most effective creation of a backup plan is by using the phrase "when -> so".
Example : When something happens on the market, I will respond as follows.
And, in the context of the backup plan, it should look like this. When the primary strategy fails this way, I will activate the backup plan.
The backup plan is then nothing but a set of trading conditions and subsequent entries and exits from trades.
Managing and updating the backup plan
If there is a backup plan where it is clear from a simple analysis that its conditions are not feasible in the current medium-term time horizon, then such a plan is not very usable. Therefore, it's a good idea to update the backup plan once in a while to check its relevancy.
A backup trading strategy should include:
- is fundamentally different from the primary strategy
- easy to use and understandable
- tradable on the same timeframe as primary trading strategies
- for the trader as stress-free as possible
Trading without a backup plan and strategy can be very risky and unprofessional, so do not
repeat the mistakes of your predecessors.
About the Author
Team Purple Trading
Purple Trading is a true and 100% fair ECN / STP forex broker providing direct access to the real market. High speed orders execution, no trade-offs, no limits for any type of trading, the most advanced trading technologies. Explore more about Purple Trading at www.purple-trading.com .
For more information on the risks of trading, click here .
P.M. Purple Trading is a trade name owned and operated by L.F. Investment Limited., 11, Louki Akrita, CY-4044 Limassol, Cyprus, a licensed Cyprus Investment Firm regulated by the CySEC lic. no. 271/15.