The importance of trading with rules, whether trading forex online or any other market cannot be sufficiently stressed. Having a concise and well-defined set of rules before embarking on the trading road can save you untold grief and a lot of money.

The reason rules are so important in trading, is because of the emotional charge most people get when trading, which can lead to a loss of discipline and money. Rules help traders keep emotional responses to trades at a minimum.

One sign of a successful trader consists of an undaunted attitude regardless of market direction or lack of it. The savvy trader seems to be composed no matter what the market circumstances.

Most successful traders follow a trading plan which they either borrow from someone else, or develop themselves. As most pros will tell you, having a trading plan makes up a key element to successful trading.

The Trading Plan

Having a trading plan before starting to trade is much like having a map before starting to travel. Would you take a trip without knowing how to get where you are going? Trading in the forex without a trading plan, even if you have experience trading in a demo account, can be a challenging experience once real money is on the line.

A concise and detailed trading plan, with clear instructions for all market eventualities must be written down in order to act as a reference and to avoid confusion when trading. In addition, keeping a journal of all trading activity with the reason the trade was initiated and a description of the emotional reactions the trader may have is extremely important.

No serious trading plan would be complete without some form of risk management component, which would include clear instructions for position sizing in relation to the size of the account. This allows a trader a greater degree of control over their risk exposure.

Developing a Trading Plan

While some trading plans seem complex, developing a trading plan does not have to be difficult, and the complexity can be decided by the developer. A basic plan which is easy to follow and incorporates clear technical trading signals is what most traders attempt to achieve when developing a plan.

Another viable option consists of following someone else's trading plan, saving the time and effort to develop your own; you would be able to test the plan immediately. If the plan fit your trading style, and you were able to stick to the parameters outlined by the plan, it would really not matter who developed the plan as long as the plan produced positive results.

Testing the Trading Plan

Once the trader has developed or acquired a trading plan, the time for testing the plan has arrived. The easiest way to test a trading plan is to open a demo account with a forex broker and download their trading platform. Conversely, you can just open a Metatrader 4 account to back-test your trading plan. Some trading platforms will even allow you to automate your trading plan with their proprietary programming language.

After setting yourself up for virtual or paper trading, it is strongly recommended that you trade in the demo account for at least a three month period, primarily to get used to watching the market and find out if you are comfortable trading the market.

Remember, virtual trading is not the same as when you have real money on the line. Your emotional responses will be invariably different when you have nothing to lose.

Nevertheless, the experience will give you a good idea whether trading forex is for you.

Putting Your Education to a Live Test

Once you have determined that trading is a viable way for you to use your money to make profits, you are able to go live and start trading in a funded account. This makes up the most important part, where following your trading rules will translate in to hard cash profits.

The reason that professional traders remain successful involves the following of their trading plan rigorously and not losing discipline in the face of losses. Many traders plans allow for a certain amount of losing trades in a row. When faced with a string of consecutive losses, many traders fold unless they have made provisions for just this eventuality in their trading plan.

Trading in any market, let alone the forex market is not for everyone, be sure to do the research and take the time to trade in a demo account before deciding to jump in with both feet. Who knows, you might be the next George Soros.

Risk Statement: Trading Foreign Exchange on margin carries a high level of risk and may not be suitable for all investors. The possibility exists that you could lose more than your initial deposit. The high degree of leverage can work against you as well as for you.