Mental biases such as loss aversion and recency bias can often skew the way people approach foreign exchange (forex) trades. A trading plan can help instill discipline and minimize the impact of biases. This kind of pre-planned strategy can help you make better trades and take some of the impulse and emotion out of trading. Establish trade strategies based on either news events or technical/mathematics principles, and gather data on past performances. You can then get started figuring out things like your trade frequency and entry/exit signals.
- Cognitive biases such as loss avoidance and recency bias can often cloud your judgment when making trades.
- As you start making a trading plan, decide whether you are basing your strategy around news events or technical principles, than gather data accordingly.
- Establish a clear set of entry and exit signals to take the emotion (like fear of missing out) out of making big decisions.
“A forex trading plan is your strategy for when and how to enter and exit trades. Imagine you are a basketball player with no strategy for setting up a winning shot. As you dribble the ball, the other players block you, so you instinctively choose to reverse direction.”