To design an efficient trading plan, you should start first by identifying your own trader profile.
There are 4 categories of traders:
Scalper: he pursues small but immediate gains when the market moves the most - for example, Sessions overlap. He keeps an eye on his charts all the time, has the ability to make quick decisions, loves the adrenaline.
If you’re the scalper type it is recommended to trade pairs such as EUR/USD, GBP/USD, USD/JPY and USD/CHF because are most liquid (traded at high volumes) and have lower spreads.
In this case, pay attention to spreads. Frequent trades mean that you’ll have to pay more spreads. (TP should be at least twice the spread)
This style is more sensitive to major fundamental factors that can bring large price moves. If you’re a beginner, you should focus just on a few pairs at the same time.
Day-trader: he prefers one day trades and longer decision-making periods. It is recommended to study fundamental factors that could increase the volatility over the day.
These traders approach one of the following strategies:
Trend-trading: based on multiple timeframe analysis. They identify the general trend on a longer timeframe - H4, for example – and then identify entry points using indicator on smaller timeframes - M15, for example.
Inputs are made during the impulse wave, near support/resistance areas.
Countertrend-trading: identifying trend reversal points (overbought and oversold areas) in order to take advantage of the new move from its very beginning. It is a riskier method, because the trade is executed immediately at the breakout point, when the new support/resistance level haven’t been tested yet.
Breakout-trading: identifying strong support and resistance levels and placing pending orders in both possible directions. The narrower the variation between support and resistance, the greater chances for a breakout. As a rule, TP should be equal to the length of price move before the breakout.
Swing-trader: places orders which remain active for a few days. Is suitable for those who want to focus on bigger profits, who can only spend a few hours a day to study the charts and news. SL should be bigger. It is recommended for traders who are patient and manage their stress well.
Position-trader: executes strategic trades, based on fundamental factors, for weeks, months or even years. The decision-making process is long, it requires a larger capital, a large SL, good stress management and patience. This style is approached by traders who have a big capital and want a long-term investment.
Identifying your trading profile is essential in designing a plan, a strategy and a system. Demo trading is how each of you can define his/her style without any risk.
Your style must be constant but flexible enough to be changed when it’s not compatible.