When I first started trading, I thought it was absolutely useless. I believed that having a strategy in my head was enough and that writing anything down was unnecessary.

This mindset is common among new traders. However, as you gain more experience, you’ll come to understand that systemizing your trading approach is crucial for success. While we may have our trading rules in our head, when it comes down to actual trading, it’s easy to become flexible with these rules, often to our detriment.

For instance, you might be tempted to drop down to a lower timeframe, trade based on a news event, or close a trade early. These actions, although seemingly minor, can lead to unnecessary losses and a lack of discipline. I’ve been there, and I’m sure you have too.

That’s why having a trading plan is essential. This is my trading plan, and while it doesn’t have to be yours, it can serve as a framework to help you build your own. It might also highlight some gaps in your trading strategy or bring up considerations you hadn’t thought of before.

No matter how you decide to use it, I hope it solidifies your trading approach and helps you think more objectively, focusing on systems rather than the emotional rollercoaster that trading can often be.

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Confluences to Consider When Taking a Trade

When deciding whether to take a trade, it’s important to look for multiple confluences. These are factors that align to increase the probability of a successful trade. Here are some key confluences to consider:

1. Trendlines: These are lines drawn on a chart to indicate the direction of the market. They help identify potential support and resistance levels.
2. Moving Averages: These are indicators that smooth out price data to identify the direction of the trend. Commonly used moving averages include the 50-day and 200-day moving averages.
3. Fibonacci Levels: These are horizontal lines that indicate potential support and resistance levels based on the Fibonacci sequence. They are used to predict the extent of retracements and extensions.
4. Key Levels: These are significant price levels that have historically acted as support or resistance. They are often psychological levels, such as round numbers.
5. Round/Psychological Levels: These are price levels that end in round numbers, such as 1.3000 or 1.5000. Traders often place orders at these levels, making them significant.
6. Connected Pairs Aligning: This involves looking at related currency pairs to see if they are moving in the same direction. For example, if both EUR/AUD and GBP/AUD are moving in the same direction, it can strengthen the trade signal.

Requirements to Take a Trade

To ensure that a trade has a high probability of success, I require at least three confluences on the daily timeframe. Additionally, 24-hour confluences can be considered equivalent to one daily confluence.

Minimum Risk-Reward Ratio

A minimum risk-reward ratio of 1:1.5 is required to take a trade. This means that for every unit of risk, the potential reward should be at least 1.5 times greater.

Risk Management

Effective risk management is crucial for long-term success in trading. Here are my risk management rules:

• Maximum 0.5% risk per trade on live accounts: This ensures that no single trade can significantly impact the overall account balance.
• 1% risk on the first trade of challenge accounts: For challenge accounts, I start with a 1% risk and then adjust it based on the account’s performance.

Trade Entry

I always enter trades using pending orders. This means setting an order to buy or sell at a specific price level, rather than entering the trade immediately. This approach helps ensure that trades are executed at optimal levels.

Placing Pending Orders

When placing pending orders, if the confluences are separated, I either split the orders or choose one area to enter and adjust the stop loss accordingly. This helps manage risk and ensures that the trade has room to breathe.

Impact of News on Trading

News events can have a significant impact on the market. However, I do not fear the news. In fact, the faster the market hits my price, the better. The only news events that I cancel trades for are Non-Farm Payroll (NFP) and central bank news/data.

Cancelling a Trade

Cancelling a trade is slightly discretionary, but there are some general guidelines:

• A significant test is required to achieve a significant move. I don’t rely on the 1-hour chart to see if an area has been tested.
• I cancel a pending order if:
  1. The conditions mentioned in the news section above are met.
  2. The price came sufficiently close to hitting the area and has moved significantly from the pending order.

Setting Profit Targets

Profit targets are set slightly before significant confluences. For day trades, the first profit target (TP1) will always be 50% of the position at 30 pips. This helps lock in profits and manage risk.

Setting Stop Loss

The stop loss must be placed below (or above if it’s a short trade) all confluences, with sufficient room to breathe. It’s important to ask yourself if you can live with the stop level. If the price hits your stop level, will you be able to move on, or will you regret not giving it more room?

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By following a structured trading plan, you can avoid the pitfalls of emotional trading and maintain discipline. Remember, trading is not just about making money; it’s about managing risk and staying consistent.