Sunday, June 23, 2013

The Forex Heatmap ® Educational Blog Is Moving !


The 35 forex lessons detailing the the Forexearlywarning system are located on at  Forexearlywarning.com.

At some point this blog will be completely disabled and the remaining content will be moved to this new location.

googlee6b32c51f5a7b3f0.html

Monday, February 27, 2012

Writing A Trading Plan for the Spot Forex


Introduction


Traders have an old saying, “plan your trade and trade your plan”. Most forex traders do not trade with a plan and they suffer losses or a long series of bad paper trades. This article offers a specific step by step guide to writing a trading plan for one currency pair or any number of pairs you wish.

Why Would I Write a Forex Trading Plan?


Try trading without one!!!!
 
You can trade the spot forex with a trading plan or without one, it is doubtful that 5% of forex traders trade with a plan. You can also climb into your car with no money, no gas or a road map and try to drive someplace 1000 miles away but you will not get there. You do not have a plan. 

This is one example of how many different things in life can go wrong due to a lack of having a plan. Trading is serious because real money can be made or lost and emotions are involved. Having a trading plan is essential before pulling the trigger in a leveraged and volatile market like the spot forex.

Anyone who intends on trading any financial market needs a trading plan. Trading plans have been used on all financial markets for many years, even very simple plans are used for managing and re-balancing assets and portfolios of mutual funds, as well as stock and commodities trading.

Somehow when retail trading started on the spot forex a few years back trading plans were left behind and the focus has not been on trading plans in the forex industry. The focus has been mostly on technical indicators, forex robots and scalping and the results have been somewhat disastrous.  If you look at the top 1000 forex websites out there I seriously doubt if five of these forex websites focus on trading plans. This is appalling and a sure sign that forex traders are headed for problems.

For years traders have failed trading the forex worldwide and large financial losses are the end result. It is not okay, it is terrible. Not trading with a plan causes psychological damage to traders and their hopes and dreams are permanently lost. Having a trading plan can prevent this and is the first step to getting your forex trading under complete control.

Outside of forex brokers who are regulated and only act to execute trades, the forex industry is in somewhat of a mess. Using a trading plan for trading the spot forex is not a forex industry standard. A trading plan is something that very few forex traders or trainers talk about and the few trainers that do discuss trading plans do so in vague general terms like “you must trade with a plan”. But then they offer no specifics as to how to write or prepare a trading plan. This article is loaded with specifics on how to write a trading plan and the traders who want to write trading plans need to make this their guidebook for writing a trading plan for any currency pair you wish. To my knowledge this is the only guide to writing trading plans for any currency pair on the internet that contains all of the specifics you need.

Let us all put some sanity back into the forex industry and always make an effort to trade with a plan, if you want to learn how to write your own plan or properly evaluate someone else’s plan who has the proper expertise, that’s fine too. Move out of the bad habits perpetuated by other forex traders who for years have been lost or looking for shortcuts and create your own good habits for successful forex trading. Ignore the forex industry and write a trading plan daily.

What Currency Pairs Do You Want to Write Plans For?


There are essentially two approaches. 

1. Writing a trading plan for one pair or
2. Evaluating the entire market and choosing the best pairs based on the analysis. 

We will focus on number 2. Some forex trainers and educators will tell you to “focus on one pair” because they know that most forex traders trade the EUR/USD. If any forex trainer tells you this politely tell them no and move away from them as fast as possible because the trainer that tells you this has likely never performed even one total market analysis much less written one single trading plan in their life. 

 In this article we will focus on “overall market analysis” and choosing the best pairs, not EUR/USD analysis. The EUR/USD is not the forex. The EUR/USD is only one currency pair in a market full of trading opportunities, based on proper planning and market evaluation. If the EUR/USD is choppy and difficult to trade but the GBP/CHF is in a solid trend we will identify this opportunity in the overall market analysis and write a trading plan for the GBP/CHF. Forcing trades into the EUR/USD every day is financial suicide. Especially when the GBP/CHF is solidly trending and moving hundreds of pips. There are 28 currency pairs comprised of the 8 major currencies that can use these planning techniques used here. 

The scope and approach in this article is to perform a full forex market analysis and prepare trading plans for the best trading opportunity available that the market presents. Sometimes the best trading opportunity will be the EUR/USD, most of the time it wont be. Forcing trade into the EUR/USD is wrong and the road to failure. If you trade 28 pairs instead of just one pair, logically, you can make many times more pips than trading one pair and have 28 times more opportunities. Trading one currency pair completely limits the upside potential and the forex profit opportunity.

So the scope of this article is now clear, we will teach you to analyze the entire market and trade the best pairs and trends available based on the overall market analysis, we will not teach anyone to arbitrarily force trades into a single pair repeatedly, which will lead to scalping and the same set of nonsense that has caused most forex traders to fail for many years now. In this article we will learn to write trading plans for any currency pair comprised of the eight major individual currencies.

What Is The Trading Style You Are Planning For?


Forex traders use three basic trading styles: scalping, swing trading and longer term trend trading.

Almost all forex traders are scalpers. The general definition of scalping is generally entering a spot forex trade for less than 15 minutes to one hour looking for 10 or 20 pips of profit, sometimes even less. Scalpers usually focus on one or two pairs. The entire concept of conducting a complete market analysis and trend analysis followed up by a written plan is something they have never done or even considered.

Scalping is a defense mechanism for a lack of knowledge and almost certainly for lack of a trading plan. People without trading plans and effective entry management systems scalp the forex and they are trading scared. When you scalp the forex your money management ratio is negative and eventually it will cause you to lose your trading account. Even scalpers admit they do not enjoy it and admit it has no future. Forex traders do not want to scalp, they want to make a lot of pips, but they scalp because “other traders are doing it so it must be okay”. It is not okay, do not fall into this vortex of ignorance and following the herd. 

The money management ratio of any trade is the amount of pips you expect to make versus what you risk, the expected pips versus the initial stop amount is negative with scalping. For each pip at risk you are not trying to make more than one pip of profit. With scalping if you are right 50% of the time you will lose your entire account. Do the math. If you ask forex traders if they want to scalp they do not really want to do it but they go ahead and do it anyway. This is greed and forcing trades into the market without a system at all.

Scalpers do not know what they are doing, that is why they scalp, and they take on incredible risks and they have no trading plan or methodology of verifying their entries. Scalpers do not want to scalp and they wish they had something much better. They know that the longer they scalp that at some point they will no longer be able to do it. It will wear them down mentally while position traders are hanging on to their trades for weeks at a time. Anyone who successfully trades the spot forex has to hold onto their trades longer, even scalpers know this but some of them will not admit it. When you trade the forex you must leave your ego at the door.

In order to have the proper money management ratio in any forex trade entry you must have a swing trading or position trading objective as your trading style. The minimum goal is to hold onto the trade for one strong movement cycle in the main trading session of the market or possibly hold on for days to weeks if the market condition and trends will support this style. Swing trading works in a trending or oscillating market and longer term position and trend trading works in a trending market. Both methods have acceptable money management ratios. In this Knol we will learn to write trading plans for swing to position trading, not scalping. From this point forward we leave scalping behind and ignore what is happening with forex traders.

In my opinion the proper way to trade the spot forex is swing trading or longer term position or trend trading and the risk reward ratios clearly support this.  With swing to position trading your money management ratio starts around +3 and goes as high as +50. For each pip you risk you expect to make between 3 to 50 pips.

The scope of this article and the techniques we will describe is to write a forex trading plan with a basis of swing and position trading style trading. These trading plans will always trading in the direction of the major trends on the forex market. If you are interested in trend trading you can also read the excellent book by Michael Covel.  

Do You Really Want to Write a Trading Plan?


Okay so you want to write trading plans every day, fine, I have convinced you. Are you sure?? Are you ready to do what it takes?? This is where I will give all forex traders an “out”.

Learning to write spot forex trading plans takes alot of work and commitment over a long time. Remember I said at the beginning of this article that you must have a trading plan, but I gave you the option of using someone else’s plan or writing your own trading plan.

If you choose to write your own plans you still must learn how to write them from someone who knows how to write plans and has the experience and track record to show you how. Hopefully this article will get you going in the right direction so you can make the best decision for yourself and start some new habits.

This is why scalping, forex robots and technical indicators are so popular. They require far less work than analyzing the entire market every day so traders take the path of least resistance. This is also the path to complete and total failure as a forex trader, as is the case with many other things in life. If knowledge is power lack of knowledge makes you powerless. There are no shortcuts to the pips. Scalping, robots, and technical indicators are completely worthless and have victimized nearly every forex trader with frustration and losses.

Remember you can still get out of learning to write your own trading plans right now. I am giving you a way out. But do not plan on trading the forex for long if there is not a trading plan in front of you every day. It can be your trading plan or someone else’s plan.

What Should A Forex Trading Plan Contain?


A forex trading plan should be simple and unambiguous. It should give specifics of the pair to trade, the direction to trade in or the direction of the primary trend, tell you if the market or that pair is trending or oscillating/ranging, and have a price target if one can be identified. The plan should have some kind of alert system for notifying you that it may be time to enter the trade. Finally, it should give you a set of exact conditions under which the trade entry can be verified. 

The plan should also have a rationale or logic path that is based on a total market analysis and the trade plan rationale should be easy to verify by any intermediate level trader with very simple forex trend indicators. In other words anybody who shows you a spot forex trading plan should  be able to back it up or explain it relatively easily to another trader with their overall assessment of the market and a natural logic path that led to the plans. No secret formulas, no secret algorithms or secret robots, just logic please. 

Statements about the overall market condition like upcoming strong news drivers or market choppiness can also be inserted into the plan. Examples of simple, straightforward, fully verifiable trading plans are included in this article.

What Indicators Should I Use to Perform My Market Analysis?


A very simple set of trend indicators like moving averages should work fine, as long as the indicators are set up and can be used across multiple time frames. 

I gave out this set of free trend indicators and they should work fine for you. Remember that you conduct the overall market analysis with these indicators and as you conduct your analysis you will be writing down notes on your observations. When you review the last currency pair and go back and read over your notes the current market condition will begin to become obvious (i.e. what pairs or groups are trending, choppy, consolidating, at support or resistance, inside support/resistance zones or clusters/layers, etc.) and the trading plans will be nothing more than a formal write-up of your analysis notes. Your analysis consists of cycling through the pairs and observing and gathering market information pair by pair, individual currency group by group and time frame by time frame using these indicators.

What Market Analysis Techniques Should I Use To Prepare Plans?


 The market analysis technique we will use is called multiple time frame analysis.  Multiple time frame analysis of trends (MTFA) is your main analytical method to develop written trading plans. Knowing the trends of the market is essential to drawing up a plan. If you have not read the article on multiple time frame analysis that is part of this 5 part series it may be best to stop at this point and go read it carefully and set up the free indicators because these are the indicators we will use to analyze the forex market and to prepare our daily trading plans. 

Along with MTFA you should analyze support and resistance levels across the time frames simultaneously as you inspect the trends.  And finally you should analyze the pairs and time frames in individual currency groups. For example all of the USD pairs should be analyzed together using MTFA, then all of the CHF pairs, then all of the GBP pairs, then all of the JPY pairs, etc., continuing through the 8 major currencies. We will analyze the eight major currency groups, each pair within a group, then group by group, in the plan development process and the complete list of pairs is below.

The purpose of analyzing support and resistance simultaneously as you review the various trends and time frames is that you want to compare resistance and support levels across all time frames, pair by pair. Analyzing the pairs in groups like all of the USD pairs together, etc.,  allows you to see what individual currency is strong or weak so you can more effectively draw up your plans. Analyzing pairs by individual currency is called parallel and inverse analysis.


Applying MTFA with these techniques on groups of pairs is how you draw information out of the market to determine how to write a trading plans based on market logic, not crappy technical indicators which account for none of this.

Now that you know what market analysis technique we are going and your indicators are set up lets draw up the steps to preparing a plan.

Step 1 – Read The Instructions

 
If you get off track for any reason go back and read this article again to get re-centered, especially when you are starting out and until the good habits of daily market analysis are built. Use discipline and focus.

Step 2 – Inspect Largest Time Frames First


Inspect and review the four major time frames on the trend indicators I have provided you with across all 28 currency pairs. Surprisingly, after you do this for a while it starts to get easier and winds up taking only about 30 minutes to do. If you get this far and do it every day you are already ahead of 95% of forex traders because you are operating with substantially more information. It does not mean you will be a successful trading plan writer just yet, that takes some experience,  it just means you are now on track and moving down the right path to be a consistent plan writer and the good habits of total market analysis are now starting.
 
The four major time frames/trends to inspect and review are:
H1 – one hour per time frame (bar)
H4 – four hours per time frame
D1 – one day per time frame
W1 – one week per time frame   



NINE TIME FRAMES
Click on Any Image to Enlarge

In certain situations you may have to also review the MN time frame  (one month per time frame) but on a day to day basis its not really necessary.

This is the list of currency pairs that you should inspect the four major time frames on.  There is some flexibility on the exotic pairs.  You can add additional pairs or substitute certain pairs on the exotic (non USD) pairs depending on what pairs are available to you on your charting platform from your broker:

USD Pairs – EUR/USD, GBP/USD, NZD/USD, AUD/USD, USD/JPY, USD/CAD, USD/CHF
CHF Pairs -  USD/CHF, EUR/CHF, GBP/CHF, CHF/JPY, AUD/CHF, NZD/CHF, CAD/CHF
EUR Pairs – EUR/JPY, EUR/CHF,  EUR/CAD,  EUR/AUD, EUR/GBP, EUR/USD, EUR/NZD
JPY Pairs – AUD/JPY, NZD/JPY, EUR/JPY, CHF/JPY, GBP/JPY, USD/JPY, CAD/JPY
GBP Pairs – GBP/USD, GBP/CHF, GBP/JPY,  EUR/GBP, GBP/CAD, GBP/AUD, GBP/NZD
CAD Pairs – USD/CAD, AUD/CAD, EUR/CAD, CAD/JPY, GBP/CAD, CAD/CHF, NZD/CAD
AUD Pairs – AUD/USD, AUD/CAD, AUD/NZD, AUD/JPY, EUR/AUD, GBP/AUD, AUD/CHF
NZD Pairs – NZD/USD, NZD/JPY, AUD/NZD, EUR/NZD, GBP/NZD. NZD/CHF, NZD/CAD

You review each currency pair twice, because each currency pair has two sides. For example the EUR/USD should be reviewed with the EUR pairs review and then again with your USD pair review, remember each currency pair is composed of two individual currencies. Remember that reviewing the four major time frames/trends on these pairs takes surprisingly very little time, about 30 minutes once you get the hang of it. It takes even less time if you only review the H4 and D1 trends. You could easily do this twice per day and at the same time be incredibly far ahead of all of the ignorant forex traders who persist in scalping one or two pairs. For full time traders this is an absolute must and there is no excuse not to do your daily drill down of the charts.


USD PAIRS GROUPED TOGETHER FOR ANALYSIS
Click on Any Image to Enlarge

This image above shows how to set up all of the USD pairs side by side for analysis, next you set up the JPY pairs side by side, then the CHF pairs side by side, etc. through all 8 major currency groups.

Step 3 – What To Look For on The Larger Time Frames


When you are inspecting the larger time frames you need to observe the overall shapes of the charts with some emphasis on the most recent time frames and determine which pairs are trending or oscillating, consolidating and retracing, in tight ranges, smooth cycles or choppy movements.

Trending means that the H4 chart at a minimum or better yet the D1  or W1 time frame is in an established trend or about to start one as the green and red lines intersect. H4 time frame would be for swing traders, the larger time frames would be for trend and position traders.


EXAMPLE OF ESTABLISHED D1 INTERMEDIATE UPTREND IN PLACE
 
An oscillating pair is one that is cycling up and down in a range between support and resistance on the H4 time frame or larger.




Remember that the higher time frames always overrule the smaller ones. If the largest time frames are not trending the smaller time frames are likely oscillating in a range between support and resistance.

Always inspect the entire time frame from left to right and remember that the smaller time frames only form a portion of the larger time frames to the right. For example the entire H1 chart is equivalent the right 1/4 side of the H4 time frame, and, equivalently, the H1 chart magnifies the right 1/4 side of the H4 time frame. Apply this logic to all of the time frames to see how any time frame can build a larger ones to the right.

Step 4 – Conduct A Parallel and Inverse Logic Check


As an example if you review step 1 to 3 and all of the JPY pairs are in downtrends, then the JPY is strengthening across the board and its best to plan in that direction. This simple logic available to anyone but ignored by nearly all forex traders. Similarly if you review all of the JPY pairs and none of them are trending, they are all oscillating in tight ranges and choppy, you could just choose to not trade any pairs in the JPY group and look at other individual currency pair groups for potential trades. For example you could move onto the GBP pairs to look for opportunities next. Don’t over complicate this incredibly straightforward way of thinking about how the forex works.

After you have determined what is going on with the larger time frames in the JPY group, then if trading makes sense you can look at the smaller time frames and intraday support and resistance numbers to estimate your price alarms. Set your trading plan in writing from there.

Step 5 – Set Price Alarms


Earlier in this article I directed you to one of my other articles about support and resistanceAfter reviewing this you will have a much better idea how to proceed with setting price alarms on your trading platform. Here is the short version. As you are review the larger time frames in steps 1-3 you should also be checking areas of support and resistance on the larger time frames as well. In the example we used above if all of the JPY pairs are in downtrends you can now check the smaller time frames for intraday support and resistance and set price alarms on the various JPY pairs (support alarms in this case since they are all in downtrends) to assist with preparation of your sell plans.

Step 6 – Check the News Calendar


News items alone cannot determine when to trade, news items can move currency pairs with the trend or against it on a short term basis. Trading the news alone is foolish and risky and millions of dollars in trading accounts can and have been lost by trading the news alone. Also, its just not necessary. 80-90% of solid and sustainable trade entries occur after the start of the London session and through the USD session due to the large volatility and market participation.

Volatile news items that are scheduled for the upcoming main trading session that could affect market movement are easy to check and part of our planning process. A link to two free news calendars we like is at the bottom of this article. Knowing when the market can move is part of any trading planning process.

Step 7 – Estimation of Pip Potential and Risk Reward Ratio


Before you enter a trade and as part of the planning process you will identify the short term and long term support and resistance BEFORE you enter the trade. If you enter a buy order and the next resistance is 100 pips away and you start with a 30 pip stop your short term pip potential is 100 pips and your risk reward ratio is 100/30 or 3.3 to 1 positive. If you do this in the planning process you can make a decision up front whether or not you even want to consider taking the trade at all based on the known risk/reward ratio. If a larger time frame is starting a new trend risk reward ratios can be as high as 50:1 positive . If the risk versus reward ratio is unacceptable you can decide not to trade the pair you are considering on an up front basis based if the pip potential is too low..

Some thoughts on Step 7

Knowing the pip potential of a trade before you enter is part of the planning process. Traders who scalp the forex market or use robots are entering trades arbitrarily without this information and are absolutely doomed for failure. Scalpers and forex robots are working on negative money management. This is a huge difference for trade planners who can opt out of any trade before the trade ever happens. Its a matter of looking at a few charts. Traders who plan well are totally different from this scalping mentality and they know the risk and reward ratios up front. Trade planners are planning for two hours and trading for two minutes, which is exactly the opposite of what most forex traders (scalpers) do. 

There is an old story about how Abe Lincoln was given 8 hours to chop down a large tree and he spent the first 6 hours sharpening his axe. This is NOT how forex traders think. If you spend a lot of time analyzing the market and planning your trades the actual trade entries get a lot easier. Forex traders need to “sharpen their axe” before trading.

When Is The Best Time to Write A Plan?


The forex market essentially has two trading sessions, the Asian session and the main session which is the combined European and US session. 80-90% of strong and sustainable entries are in the main trading session. The main trading session is by far the best time to trade the forex market. Some pips are also possible in the Asian session but forex traders need to learn how to trade the forex in the main session first because this is where they will succeed.

The best time to plan your trades is several hours ahead of the start of the main trading session when all of the pairs are consolidating.   A trading plan should be completely finished several hours ahead of the start of the main trading session. The main trading session starts about 4-5 hours before the US stock market open until about 1 hour afterward. Most sustainable forex trade entries occur during these times.




PICTURE OF MAIN TRADING SESSION TIMES AND VOLATILITY
Click on Any Image to Enlarge

It is also possible to do some planning ahead of the Asian session. The procedure is roughly the same and  you would check the trends following the same seven steps listed above and check to see what pairs could be trending or oscillating. An example is if the NZD has an interest rate decision coming in the Asian session and the NZD pairs are clearly trending or oscillating you certainly can write a trade plan towards that. Asian session currencies are the NZD, AUD, and JPY. After you have been trading the main session for about a year successfully then you can start to prepare plans for the Asian session, that is the right experience level.


What Should My Final Trading Plan Look Like?


Trading plans should be simple, unambiguous, and should be easily verified by any intermediate level forex traders using a simple set of indicators like the ones we give out in this article. Nothing complicated.  Forex trading plans must be fully defensible by the trends, time frames, and support and resistance levels of the market and have price alert criteria as well as an entry management criteria in the plan.

Here are two very simple trading plan examples:

Example Trading Plan #1


All of the JPY pairs are weak or in intermediate term downtrends, the EUR/JPY is sitting on an intra-day support level just above 140.00. Set a sell alarm here and when the alarm hits in the main session verify your sell entry with JPY strength across the board.

Comments: This is a simple and unambiguous plan and anyone who reads this plan should be able to verify the trends on the JPY pairs and the 140.00 support level and alarm point in about 5-10 minutes by looking at a few charts. It should be completely logical as to why you are considering this sell trade entry.  You also know that it is an intermediate term trend so you should be able to hang onto the trade for as long as a few days or possibly weeks. Information on how to verify the entry is included in this article down the page.

Example Trading Plan #2


The USD pairs are all oscillating on the H4 chart. The pairs are stalling at support and resistance now and they could start to move tonight based on USD strength. Set a sell alarm on the GBP/USD at 1.6450 and when the price alarm hits monitor the market for USD strength with the Forex Heatmap®.

Comments: Once again this plan is simple, its also logical, contains under 60 words but it can easily be verified by some chart inspection in 5-10 minutes by any intermediate level trader and this is all you need to trade with. Simple and effective. Some people want things to be complicated but there is no advantage to this.


Other Trading Plan Writing Tips


1)  Establish a daily routine of writing your plans at specific times.
2)  Always determine the major trends of the forex market with the larger time frames first
3)  Use parallel and inverse pair groupings, i.e.  overall EUR strength or NZD weakness, or whatever to help set up plans.
4)  Always analyze currency pairs in groups (USD pairs, GBP pairs, etc)
5)  Write down areas of support and resistance as you drill down the time frames and set price alarms at intraday support and resistance and in some cases longer term support and resistance to establish targets
6)  Final plans should always be written, no shortcuts here
7)  Do not have predetermined bias towards the market before you ever analyze it, let the charts tell the story,  stop doing what you want to do and let the forex market tell you what to do, it’s a $4 trillion dollar per day market that does not care about your 5 mini lots.
8)  Organize your thoughts and market observations in written notes as you drill down and review the charts and trends then rewrite your notes into a formal plan.
9) Learn to pick up clues as you observe the charts and time frames and jot them down in your notes and rough plans, learn to be a good observer and detective. No substitute for experience
10)  Rewrite your notes formally and this qualifies as a plan. You will be surprised how the charts are trying to tell you something every day you just have to become adept at listening to and interpreting what the charts are screaming at you. Open your eyes and soak it in.
11) The market is dynamic, things can change, trends can start from nothing, trends can end today, pairs can consolidate for days.
12) Take pride in your plan writing skills, very few, if any, forex traders even try to write plans. You are in a class by yourself.
13) Don’t treat writing trading plans like it is work if you enjoy what you do its not work at all. If writing plans is hard work for you or stressful then it is time to follow someone else’s plans and you can still try to write your own plans at some point in the future.

Trading Plan Entry Verification


As a forex trading plan writer you basically have two modes of operation, The first mode is the analysis mode where you are thoroughly analyzing the market using the techniques described in the articlle. The second mode is the entry mode when you are done with the analysis and monitoring the market and looking for an entry point for possible execution of your plans. At this point your plans are finished and you are waiting for the main trading session, strong news drivers and price alarms to hit to see if there are any valid entries today.

Setting your Trading Plans in Motion


Trading the forex is a stepwise process, after you learn to write a trading plan then you paper trade the forex with your trading plans. Then after some paper trading success you start trading with micro lots or fractional mini lots, then over time one mini lot, the multiple mini lots and then ramp up over time to full scale lots. Build confidence as you go and don’t expose yourself financially to losses until you have your entry procedures and profit taking procedures down well. There is no substitute for experience.  You can make money trading micro lots and build up a small account and learn the forex while working on entries and managing your exits and profits.

Forex Trade Entry Verification


A typical trading plan should will some type of price alert system. In this case I teach traders to set price alarms at critical areas of support and resistance and these price alarms are part of your trading plan. When these price alarms go off, or the major news items on the forex news calendar hit in the main trading session this is an indication that it may be time to enter a trade because the market is moving. In order to determine if you should trade that pair, trade another pair, or not trade at all you need to verify your trade entry.
To verify all of your trade entries you can use a real time visual map of the forex called The Forex Heatmap®. This is a real time entry management system that is available to all traders. It is not that difficult to learn how to use and it works across 28 pairs in two directions.


THE FOREX HEATMAP® VERSION 3.0
Click on Any Image to Enlarge


This snapshot is a portion of the Forex Heatmap® 3.0 that depicts a real time buy signal on the NZD/JPY.

This entry management system is highly effective, and a complete discussion of trade entry verification and money management is available in another article that is part of this five part series. A link to the article on entry verification is at the bottom of this article grouped with all of the other links.

Developing Your Plan Writing Skills Over Time


If you decide to write your own trading plans every day using these techniques, congratulations, you are part of a very small group of forex traders, likely in the top 1% who actually make the commitment to do so and strive to be the best trader possible.

After you write your first trading plans how do you know it is right?? The answer is that you really do not know. There are no veteran forex traders you can show your trading plans to who will review and critique your work every day to see if you are progressing with your plan writing skills. It is pretty lonely work and requires you to be mentally tough to get through this phase. But it is like anything else you will get better over time.

When you write a trading plan it would be best to have a qualified and experienced trade planner review your plans. This is a real problem because to find a mentor who will do this for 6 months while you progress is probably impossible to find. Even if you could locate someone to do this your first few trading plans would likely be wrong or full of errors and having your work critiqued is tough to deal with. You are basically a very bad plan writer at first, which is expected.

This is a real problem because if you make the commitment to write forex trading plans every day there is nobody there to mentor you and review your hard work, so how can you progress?. This is why forex traders do not write trading plans. Some alternatives are presented below.

Current Status of The Forex Industry


The forex industry is an unqualified disaster and the success rate or lack thereof of forex traders is clear evidence of this. There is a desperate need for forex traders to use trading plans but there is no structure in place in the forex industry to solve this problem and mentor traders for the long term. The brokers and regulators will not do it so lets just get real, it is not their job.

I believe I have a solution that is workable. From 2000 to 2005 I worked for a company called Globaltec Solutions. I had an afternoon webinar five days a week where forex traders would submit trading plans to me for review.  The webinar room had a capacity of 500 people and the room was full every day. I developed a set of rules and a template for writing trading plans using the techniques presented in this article. Every day traders would email me their trading plans and I would review and critique the plans. Most of the traders were newbies, some were a little further along, almost all of them were scalpers.

Over time after tirelessly reviewing their trading plans I mentored a lot of forex traders and many literally became incredibly solid plan writers and profits rolled in for many of them, we created some millionaires too. It was the most unique forex mentoring class in the industry. These people became my friends and this proved to me that forex traders really want to do the right thing and write trading plans.

Some of the initial trading plans submitted to me by some of my “students” in the daily webinars were so bad I could not even read them on the air.  Critiquing new trading plan writers plans is brutal in a webinar setting because you have to basically work with brand new traders and plan writers and tell them their work is deficient. Some of my students were insulted by my reviews and humbled by the fact that they were grownups in the forex first grade. But they did learn that a bad trading plan is a bad trading plan and you will lose money if you do not know how to write a good trading plan. I think they respected that.

A lot of my students persevered and stuck with it and stumbled forward to preparing accurate daily trading plans that were spot on and loaded with pips. Developing strong trading plan writers was the goal in these webinars and we had some very good success. Unfortunately, my employer, Globaltec, proved to be a very bad partner in this endeavor and canceled the class in an attempt to build a profit center from this trading plan webinar/training success.

At the beginning of this article I gave all traders the option of not writing trading plans but give them a choice of reading someone else’s plans every day. Since so few traders can properly develop and write their own plans this remains an option for motivated individuals but this also presents most forex traders with another problem. 

Who writes forex trading plans that I can follow every day??

The forex industry has a very long list of problems that goes far beyond the scope of this article. The forex industry is almost completely devoid of any reliable and commercially available services that resemble a proper and logical trading plan.

Some forex industry service providers have “trading alerts” which are delivered by SMS mobile device and have entry price as well as take profit and initial stop. They can be as much as $500 per month for only four or five currency pairs and if you examine them closely these services are scalping services with the signals provided by ineffective technical indicators. Expect disastrous results.

Trading alerts are not trading plans because the alert services do not explain how they arrive at their entries. The techniques that they use to generate the alerts are completely hidden but if you look closely at these expensive services its nothing more than useless technical indicators. These alerts are for scalpers and the money management is breakeven at best on each suggested entry. These alert services are also very expensive. Alert services do not want you know how they arrive at their signals because then their very expensive monthly fees would disappear. Most alert services come and go every 6 months. They do not teach you how to analyze the market and plan your trades they just give you an alert and a reason to trade then hold you hostage for a large fee for what basically amounts to scalping. If you use a service like this you cannot build an analytical skill set.

A lot of websites provide “market analysis” that can go on for pages about this indicator and that indicator but absolutely no planning or verifiable entry criteria, this is not a trading plan and once again useless to a forex trader.

A forex trading plan is different. A trading plans is issued several hours in advance of the start of the major trading sessions and can be fully explained and verified by the end user using a simple set of indicators. Trading plans are based on the entire market analysis and are logical. Strangely, this does not appeal to a lot of forex traders. The reason is that because the forex industry is so messed up that most forex traders heads are full of garbage and poison. The concept of having a trading plan based on the logic presented here is not a generally accepted part of the forex industry, even though it is a sound and logical approach. This is a systemic problem with the forex industry and forex traders.

When I realized what was going on in the forex industry I felt as if a low cost forex trading plan service was sorely needed. So I started Forexearlywarning.com six years ago and it has been a great experience. After six years in business I still do not have any competitors. Forexearlywarning is a very low cost trading plan service which focuses on the major trends of the market and verifiable entry points across more than 28 currency pairs using the exact techniques described in this article. The trading plans are inexpensive but there are also some options for getting these trading plans free of charge with broker arrangements. After six years in business I remain astounded at the lack of trading plan acceptance in the forex industry and the lack of choices for forex traders.

There is a very small but emerging group of forex traders who are interested in writing trading plans, or, as an alternative, using a low cost reliable trading plan service. Although the majority of forex traders are looking for shortcuts there is a movement away from technical analysis and robots, due to the massive financial losses. The movement now is towards trading the forex in a sensible manner with techniques and methods that actually work and are transparent. Having a reliable low cost trading plan service available has a lot of educational value. Any trader who wants to write their own forex trading plans can practice their skills over time and use the Forexearlywarning trading plans for comparison to their work. Traders can try to write their own trading plans and then compare their trading plans to the Forexearlywarning plans and attempt to mimick or replicate them daily. This serves as a mentorship program.

I also include the same trend indicators that I use every day to prepare the Forexearlywarning trading plans to my clients so they can attempt to mimick the published plans. All of the educational materials are provided at no cost so traders can learn plan writing techniques and try to become good market analysts. Any Forexearlywarning client can attempt to mimic the Forexearlywarning trading plans daily or occasionally depending on their motivation level. The Forexearlywarning trading plans are 100% transparent as to how they are produced so any forex trader can follow the trends of market with us across 28 pairs. We enjoy doing it this way and to our knowledge we are the only forex vendor that does it this way.

Summary and Conclusions  


If you write your own forex trading plans you have gained an identity as a forex trader, many forex traders have no identity and float from indicator to indicators, method to method and stare at the computer all day.

Only a very small number of spot forex traders trade with a trading plan in front of them. Now it should be somewhat obvious as to what the reasons are for this. It takes work over a long period of time to get better at it and most forex traders quit because they are looking for shortcuts. A small amount of forex traders who are committed to excellence are doing extremely well with daily planning but not nearly enough traders are good at it. This is a forex industry-wide problem and is a symptom of the larger ills of the spot forex industry.

But there are alternatives and all forex traders should strive to be good trade planners even if they see the difficulties of trying to learn it on their own. Always strive to be the most knowledgeable forex trader. Anything less will result in stop outs and losses.

If you decide to try to write your own forex trading plans you may not succeed, but even a partial market analysis daily will increase your trading accuracy and awareness and it does not take that long to do. It may be best to get a qualified trading plan service and follow their strategies and techniques until you get better at it. I have provided inexpensive or free trading plans to my clients for many years and I believe I am the only forex vendor who offers forex trading plans in the entire industry.  I do this to facilitate the long term development of trade plan writers who are scarce in the forex industry.

To develop as trade planner takes time and will be very difficult at first if you try it. I have found that there are a lot of forex traders who are very driven to succeed as a forex trader and are willing to pay the price. Its a life skill and the profit potential over several years is very strong. Trading with a plan needs to become an industry standard on the spot forex and traders need to move away from the currently available shortcut methods that lead to losses into thorough forex market analysis and trade planning.