In forex trading, preparation is only half the battle. So what makes up the other half? Execution. Properly managing your open positions is just as important as coming up with a solid trade idea. Here are three guidelines to help you execute your trades properly:
1. Stay in sync with the market.
Whether you’re a hardcore technical or fundamentals trader, or maybe a little bit of both, you can’t deny that economic reports and changes in market sentiment have a say in forex price action. This is why it pays to stay updated on the events that can influence your open positions.
Some say that the market’s reaction to the news is more important than the news itself. But how can you make the most out of a reaction if you have no idea about the news event? Don’t forget to always pay attention to potential game-changers that might invalidate or at least divert from how you expect your trade to play out. My buddy Pip Diddy does an awesome job at rounding up the latest market events and giving a preview of potential catalysts so I suggest you make it a habit to check out his forex trading session updates.
2. Be flexible with your forex trading plan.
If you’ve been a good student in our School of Pipsology then you should already know how important it is to be flexible with your forex trading plan. Of course, being “flexible” doesn’t mean being totally spontaneous and not following your trade plan at all. It just means that you’re ready to make adjustments based on factors that have changed since you made your initial trade idea.
Being flexible also requires you to constantly check the validity of your setups as time passes by. Keep in mind that the longer you keep your trade open, the more you expose it to different event risks. How long did you initially plan to keep your trade open? Is your setup still valid after a few hours, days, or even weeks? Assess the validity of your setup regularly by checking if the current market environment or outlook for the currency pair still lines up with your bias.
3. Update your orders and position sizes.
Just because you have the ideal reward-to-risk ratio and a “fool-proof” trading plan doesn’t mean that you should refrain from tweaking your order levels and position sizes if the situation calls for it. Remember, you want to minimize your risk.
If one or two factors in your trading plan don’t go your way but you think your idea still has merit, you might want to cut back on your position sizes. On the other hand, if you find that the forex price action turned out to be better than what you expected, you could also consider adjusting your stop losses, taking partial profits, or even pressing your advantage. It would be a lot better if these potential adjustments for various scenarios are covered in your initial trade plan, but you still have to stay focused enough to make good trading decisions on the fly.
Remind yourself to follow these three simple guidelines when executing your trades so you don’t end up wasting your well-thought of plans. Before you know it, these practices will have already turned into habits!