Forex Investment Plans: How to Make Investment Plans?


Planning is the basis for achieving goals, the absence of a trading written plan leads to chaos and losses. If a person does not have a clear algorithm of actions and does not know how to act in a particular situation, they will hardly achieve their goals. The aim of investment planning is to develop a course of action that will help one get the desired result as quickly as possible with the minimum losses, risk level, or costs.

The article covers the following subjects:

What Are Investment Plans?

A personal investment plan is a document that includes strategic traders’ objective analysis and the algorithm for achieving them. This is an individual investment path that can be adjusted and corrected in the process of achieving goals.

Go through the following steps to make up your trading plans:

  • Define your goals. What are your trading plans and goals? An investment plan should have a global goal and local, intermediate ones. Intermediate targets are needed to control and analyse the result. The strategic goal is achieved in stages and at each stage, you should ask yourself if everything is going according to plan. Do you need to change or adjust anything? Goals can mean reaching a certain level of consistent profitability, gaining experience, etc.

  • Determine the time horizon. What is your time horizon? You need to understand when your goal will be achieved, whether it is long-term or short-term.

  • Assess your current financial situation. What tools will you use? What strategies will you employ? What start-up capital do you need to achieve the goal?

  • Determine your maximum risk tolerance. What is the potential risk level and how to reduce it? The trading plan should consider possible roadblocks and ways to solve them, as well as actions in case of force majeure.

If you need you can supplement and change the structure of your investment plan.

How to Make Your Personal Investment Plan?

A personal investment and trading plan is a kind of road map that includes several points:

  • Various combinations of risk and money management techniques that allow you to predict an unpleasant situation, avoid it, or exit with minimal losses. It is not necessary to strictly follow established or classical entry rules and exit rules, the risk of losing money can be justified. It is important to be flexible and understand possible consequences. 

  • In case of deviation from the planned strategy or target reevaluation, you should develop an extended plan. In theory, you should test a strategy on a demo account with default settings before launching it in real Forex trading. Most trading platforms have built-in testers. If the actual result is different from testing statistics, you should decide what to do next. For example, you can exit the Forex market, optimize the strategy or rebalance your portfolio.

  • Reliable sources of information.

  • Behaviour strategies in different emotional states, ways to control your emotions.

  • Actions in case of force majeure.

All these points are obvious although many people ignore them. A lack of a plan becomes a reason for mistakes made because of poor self-management and panic.

Define Goals

An accurate and well-defined goal is 50%. If you understand what you want to achieve and at what time, you can develop an algorithm for achieving the goal. You could have several related goals or their step-by-step chain.

Types of investment goals:

  • Primary and associated.

  • General and particular. General goals are relevant for all investors. Particular targets are personal and serve to solve the problems of each particular investor.

  • Tangible and intangible. A tangible objective is a financial consistent profitability. Intangible ones are experience, satisfaction, interest, and so on.

  • Strategic and tactical. Strategic goals are long-term. Tactical targets are short-term.

Examples of investment planning goals are increasing personal capital, creating a financial cushion, improving your living standard, passive income, pension, retirement pay, knowledge, and experience to share with others, and so on. 

Note! Money itself can’t be a goal. It is a tool that helps you gain the freedom of action. The goal could be making money to buy something or invest in something. It is wrong to focus on only making big profits, money must work.

Understand Your Current Financial Situation

Your financial targets must be real. If the average yield on financial indexes is 50% per annum and you want to earn 2000 USD over the same period, your deposit should be no less than 4000 USD. You should also understand that the actual return could be less or your Forex (foreign exchange) trading investment will yield a loss. Invest only the money that you can lose without suffering. You must not use borrowed money in Forex trading, I mean bank loans, you can use leveraged Forex trades or debt derivatives.

Determine Your Risk Tolerance

Investment maximum risk means the risk to have losing trades because of an inaccurate forecast or other factors.

Types of investment risks:

  • Economic risks. They are associated with macroeconomic risks, individual economies, and companies.

  • Operational risks. They are associated with the relationship between the participants in the transaction, the storage of assets, etc.

  • Legal risks. They are associated with changes in laws. These risks also include political risks.

  • Social risks. They are associated with different behavioral factors, actions of Forex market makers, etc.

The major investment risk is the currency risk, the risk of losing trades because of a movement in the exchange rate due to economic, legal, or social reasons.

Decide What to Invest in

In addition to the classic options (bank deposit, gold, mutual funds, real estate), there are also exchange and over-the-counter markets. Exchange market assets: stocks, bonds, ETFs, futures for oil, gold, currencies, etc. The disadvantage of trading these assets is the high entry threshold and exchange fees.

In over-the-counter Forex markets, CFDs, contracts for difference, are traded. For example:

  • Major currency pairs, ones that include USD. For instance, EURUSD, USDJPY, GBPUSD, and so on.

  • Commodities, such as oil, gold, and other precious metals.

  • Cross rates are the currency pairs that do not include the USD, for example, NZDCAD, AUDNZD.

  • Stock assets, such as US stock indexes, European indices, and stocks of world’s companies, including blue chips.

  • Cryptocurrencies.

You can learn about the OTC markets from the article Forex basics for beginners. 

If you don’t want to study the peculiarities of active trading, you could take advantage of social trading. In social trading, the investor’s account is attached to the account of an active trader, and all trades are copied automatically. 

Advantages of social trading:

  • The investor sets the social trading parameters of risk control. Much risk means high profit. Actual trading is carried out by the trader, who charges a commission for profitable trades.

  • The investor can watch the trading process, and get experience.

  • Social trading is a kind of money management but the investor’s money is controlled solely by the investor.

You can find the answers to the questions about social trading in the FAQ section.

Monitor Your Progress

Set a major goal and break it into intermediate steps. Systematically evaluate intermediate results and adjust the basic plan as needed. 

Tools for monitoring and self-control of results:

  • Trader diaries or trade journals. They are software that allows you to record and analyze trading results. The intermediate market analysis allows you to find errors and correct further actions.

  • Mobile apps. They are mobile versions of Forex trading platforms. If you are not next to your computer right now, set alerts on the desktop platform, and they will remind you to check your intermediate results. 

  • Excel. Any spreadsheet editor will allow you to group data and make a comparative Forex market analysis of Forex trading performance.

The key to success in achieving the goal is discipline and self-confidence.

Best Strategy for Forex Investment Planning

The basis of a Forex currency pairs investment plan is an investment strategy. It defines the algorithm of actions to achieve the goal. A trading system must answer the following questions:

  1. What is the current Forex market situation?

  2. What can happen in the Forex market in a particular period?

  3. How can you use this information and make a forecast?

When developing an investment plan, a trader should consider the following points:

  • Which Forex trading asset best suits your personal preferences. Consider volatility level, spread, need for leverage, etc.

  • What risk management parameters are suitable for the trading system. Risk level per one trade and overall risk level (acceptable stop length), optimal trade size, Martingale ratio application, etc.

  • What Forex trading technical tools, fundamental analysis instruments, price chart types, and timeframes you will apply. 

  • Forex trading entry and exit signals. Actions in case of force majeure.

Types of investment strategies:

  1. Scalping Forex trading. High-frequency trading in short-term timeframes.

  2. Swing-trading. It is trading on corrections, suggesting entering trades in the trend direction at the best prices when the correction finishes. You can read more in the article devoted to Swing Trading.

  3. Intraday trading. It is speculative trading using the most liquid assets that are moderately volatile with tight spreads. 

  4. Medium- and long-term strategies. The aim is to make profits on strong price movements. Trades are held for a few days, weeks, or months.

  5. Investment portfolio management. For example, you can invest in professional traders via social trading platforms. An investor forms a portfolio of the accounts of Forex traders who employ various strategies for risk diversification and attaches the investor’s account to them. Trades are copied automatically. You can read more in the article Forex PAMM vs Social Trading. What do investors choose PAMM accounts or social trading?

If you have your own original financial trading plan or strategy, share it in the comments.

Explore and Follow Trends

There are three basic trading strategies :

1. Trend following Forex trading plan. One identifies the trend start and spot corrections. Major tools are Elliott wave analysis, Fibonacci levels, and oscillators.

2. Support/resistance level breakouts. The trend direction doesn’t matter. You enter Forex trading when the price breaks out a strong level and starts a strong movement. You can use charting tools and price action patterns, and trend indicators.

3. Channel Forex trading. The strategy is based on the idea that the price always tends to its average value. The broader the channel, the more chance to make a profit. Main tools are levels and channel indicators.

The best Forex trading strategy for newbies, in my opinion, is long-term Forex trend trading when you enter a trade at the beginning of the trend. First, you analyze long-term timeframes, daily and weekly. You should spot the moment when the price exits flat and starts trending. Read more in the article about Trend vs Flat.

Carry Trade

Carry investment plan suggests borrowing a lower value asset and investing in a high-interest rate asset. For instance, you take a bank loan at 3% per annum and invest in stocks with a yield of 8% per annum. Your profit is 5%. Similarly with currencies: a loan is taken in a low-interest rate currency and invested in a currency with a higher interest rate.

Forex carry trading involves several steps:

  1. Study the currency pair’s specifications in the trading platform. You need to find the one for which there is a positive swap for a short or long position. The trade is opened only in the direction of a positive swap (long or short).
  2. Analyse the long-term trend. The aim is to break even and protect the trade with a stop loss at the entry level. A carry trade involves adding a positive swap to your account daily. The longer the position stays open without being stopped out, the greater will be your profit. Therefore, do not trade the pairs with high volatility and look for an uptrend in the timeframe H4-D1 or longer.

Advantages of carry trading:

  • Relatively low investment risk. If the price has advanced from the entry level so much that a stop can be set at the breakeven, the trade is risk-free. Don’t forget about the spread.
  • Daily income as long as central banks’ interest rates do not change.

You do not need to monitor the chart all the time if the trade is protected with a stop loss. 

Drawbacks of carry investment plan:

You can read more about carrying trading plan in the article What is Carry Trade and How does It Work?

Day trading

Day trading investment plan or intraday trading is a strategy suggesting entering and exiting trades within the same broker session. 

Typical features of a day Forex trading plan:

  1. You trade in short- and medium-term timeframes М30-Н1.
  2. Currency pairs are more suitable than stocks or commodity market assets. Currencies move up and down within the channel, and one could go both long and short.
  3. The most common tools for day trading plans are channel and trend indicators, support/resistance levels, and patterns.

Day Forex trading plan doesn’t suggest the application of long-term strategies, but it is good for training as it teaches beginner and other traders to take responsibility for their actions.

Advantages of day trading:

  • No swap.
  • You have time to analyze the chart before making trading decisions.

Sometimes scalping, high-frequency trading in М5-М15, is referred to as intraday trading. I do not recommend scalping to beginners. If you want to include it in your investment plan read the article devoted to Forex Scalping.

Drawbacks of intraday trading plan:

  • You need to monitor the chart from time to time.
  • For earnings corresponding to the average income for the region, a large deposit or leverage must be involved in the transaction, which increases the risks. You also need to take the time to look for multiple signals.

Fundamental Investing

Fundamental trading plans suggest entering a trade on the release of important economic news or reports. The tools of fundamental strategies are the economic calendar, market sentiment, financial reporting calendar, screeners, compounding calculator, and so on.

Advantages of fundament trading:

  • It is suitable for long-term trading plans. Fundamental analysis allows forecasting long-term macroeconomic trends and prospects of individual economies or companies.
  • Fundamental analysis considers market psychology, so it predicts the market moves more accurately.

Fundamental trading plans work better in the stock market. For example, one could buy a company’s stocks following a positive financial report.

Drawbacks of fundamental analysis:

  • In the short term, the publication of news and reports results in increased volatility and slippages. Trades could be exited with a stop loss, so news trading is considered a risky strategy.

  • You need good analytical skills. You should define the trend direction and also consider the forecast.

Fundamental Forex trading plans are more suitable for most traders with professional skills. Beginners should exit all trades at the moments of important news releases. You can read more in the article about What is fundamental analysis.

Key takeaways

A beginner investor should know:

  • Do not try to invest if you have no trading plan. A lack of a trading system will result in losses.
  • An investment plan is based on the target profit, timing, strategies and tools, investment object and deposit, and risk management.
  • An investment plan should be divided into several stages and intermediate targets should be defined. When you complete a stage, you should assess the strengths and weaknesses and check what you should change. An investment plan could be corrected and adjusted.

The best Forex investment is an investment in your knowledge. Set goals, gain experience, don’t give up and luck will surely smile at you. Successful investment!

Forex Investment Plan FAQs

There are no “good” or “bad” investments. The main guarantee of success is experience, risk appetite, ability to analyze, draw conclusions from mistakes, flexibility, time devoted to achieving the goal, and emotional stability. You determine for yourself a comfortable investment option: assets, timeframe, risk level. To find out if Forex is right for you, align the features of this instrument with your trading style, open a free demo account and try out a few trades. You can practice trading on several demo accounts, comparing different strategies.

It is important to distinguish particular instruments in the asset classes.

  • There are exchange-traded stocks and CFDs on stocks, which are the trading instruments of Forex brokers. In the first case, you buy a real asset, a share in the company. In the second case, you earn on the exchange rate difference without possessing the share. The risks are almost the same since the quotes of stock exchanges and OTC brokers are almost identical. In the case of stock brokers, commission costs are higher; in the case of Forex brokers, there is a risk of the unreliability of the brokerage company.
  • If you try to compare trading stocks and currency pairs in Forex, it is impossible to compare the risk level. Stocks do not have an upper limit of price growth, therefore they are suitable for long-term investment. Currencies move relative to each other in the corridor, so they are suitable for both short- and long-term trading strategies.

You define the risk level yourself, setting the distance for stop losses. Moreover, to limit the risks you can practice trading on a demo account or do social trading.

The profit of most traders depends on the following factors:

  • The amount of the initial deposit and the amount directly employed in trading.
  • Trading assets and strategy. For example, the cryptocurrency’s volatility could reach 7%-10% a day, while the volatility of stock for the same period will be 1%-2%.
  • Risk level you choose. The higher the risk, the greater the potential profit.

Before you start trading, you must define your goals, comparing them with your opportunities, skills, knowledge, and willingness to take risks. If you have achieved profitability on a demo account, for example, 8% per month, then you will quickly calculate the amount of income per day. You can find more about this in the review “How much do Forex traders make per month?”.

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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