The Importance of Sticking to Your Trading Plan

Filed under: Learn Forex Trading |

Screen shot 2013-01-23 at 10.12.10It is so easy to slip into the trap of not sticking to your trading plan. At the start of a year, every trader should formulate a set of loose ‘rules’ to follow, and these rules should be followed as closely as possible. For me personally, these rules included:

 

1)    Always trading with a risk level of 1% of my original bank

2)    Having a risk-reward scenario of at least 1:2 on every trade

3)    Trading my pre-chosen 11 forex pairs only

4)    Trading off of the daily and 4 hour timeframes only

5)    Trading price action signals (pin bars, inside bars, and engulfing patterns) off of significant areas of support/resistance.

6)    Trading breakouts of significant areas of support/resistance (only after close of candle).

 

Now for me, following the first four of these rules is easy, and I never have any problem in breaking these rules. It is numbers five and six that I sometimes deviate from, and it usually results in losses to my bank. So why do I sometimes (and only very occasionally) do this?

 

Today, I broke rule number six. I traded an inside bar setup at the breakout of the mother candle. This is a reasonable price action setup. However, what I did not do was wait until a very strong area of support/resistance was properly broken on the daily chart. This oversight resulted in a 1% loss on my trading bank. Sometimes, we get greedy. We want to be in the market, and we see a setup that we have a gut feeling about, despite it not quite being in our trading rules. I guess sometimes that gut feeling is wrong. Therefore, the gut feeling should perhaps only be used to abstain from a trade, rather than taking a trade; and this is something that I will note for future setups.

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