Apart from perhaps your profit and loss account, the most important document you should have is your Trading Plan. It’s mentioned in all the good trading books and most traders don’t bother, because they think it either doesn’t apply to them, or they don’t understand why they need one!

Let’s look at the second of these things a little more closely. The reason you need a Trading Plan is to have some sort of rule sheet to work off. If you don’t have rules, you won’t be a good trader – it’s as simple as that.

When trading, it is so human and easy to bend the rules a little and say things like ‘I’ll get out when the price hits 1.593’ and then a few minutes later you’ve changed it to ‘1.594’. If there is no gauge as to what you need to do, rules get bent or broken and money gets lost, so with regard to trading, it’s the money that ‘counts!’

A Trading Plan is flexible and geared to what you want in trading. It starts off being only an approximation to your trading style and as you ‘refine’ it, it becomes more accurate and definable. Just as a business (Which is what you trading is) has to forecast profits in years ahead without knowing any data, you will need to define some Trading Plan entries in the same way and then refine them when you have more information.

The first thing in a FOREX Trading Plan may be: Why do I want to be a trader? – The so called ‘Mission Statement’ Be relaxed an informal about this, e.g. ‘because I want to be more in control of my destiny by doing something I enjoy which has limitless financial possibilities, rather than being ‘salaried’ and stuck in ‘The Rat Race’’.

Next, state your trading style and why you have chosen this: ‘I am a Day Trader to Swing Trader (Most trades lasting a few hours to a few days) and occasional Position Trades for long term opportunities.’

You need to state your strengths and weaknesses, not necessarily trading based ones.

Then your objectives, in the form of financial targets or goals: I want to make 30 pips per day, for 200 trading days per year, is good. It is however, better to state days in the future when you will achieve your targets: By 1st January 2011 I will have made $60,000 is also vague and a better way of expressing it would be: I will make an average of 30 pips per day for 200 trading days per year = 6000 pips per year at $10 per pip = $60,000.

Expressing targets in the form of goals is even better:

First goal, to be able to live off earnings from trading = $500+ per month consistently for 5 consecutive months out of 6.

Second goal, to increase to next level equating to a modest ‘salary’ = $2000+ per month consistently for 5 consecutive months out of 6.

Third goal is to achieve $10000+ per month continuously.

You then need to define what markets you will trade and at what times of day you will trade them. It is also good to say why you are trading these particular markets for instance.

A little comment on what trading platform and software you use and also which broker would make you plan more complete.

Next, your trading routine: List your pre-market activities (This may be research into news, homework on charts, looking for good entry points etc.), activities during market open (How you go into a trade, how you manage it and how you will get out!) and post market activities, such as logging any trades completed.

It is important to state your trading risk levels (‘I will risk only 1% of my account on any trade’) and where and how you will enter stop losses. Also state your trading frequency – The maximum amount of trades you will place in any time period.

There are many Trading Plan ‘templates’ available on the Web. Try and find one that suits you. Then condense your plan onto one or two pages of A4 and print it out, so you can refer to it. If you are new to this, you will realise that you are constantly changing and ‘tweaking’ your plan, but as time passes, the corrections will be few and far between!