By: Charley Warady

Everyone here talks about having a Forex plan and having a Forex strategy. Particularly for the novice, these two phrases can be heard as interchangeable equals. They are not. Although every Forex trader should, and all successful long term traders do, have both Forex plan and a Forex strategy, it's important to know the difference. A Forex plan should include a Forex strategy, but a Forex strategy has nothing to do with your Forex plan. Confused? There are other word games that could be played here, but it's time to move on.

Forex Plan

The Forex plan is what you're going to do today. Not what you're going to buy and sell and where you're going to buy and sell it. It's more of a behavioral tactic. Have on paper what hours you are going to trade. Note in your Forex plan what Forex pair(s) you're going to trade. Areas of discipline that are going to be required for the individual should be noted. In other words, some traders are too shy and would like to take a bolder approach; and vice versa. Get your Forex plan down. Remind yourself to stick to your charts and not let emotions be a hindrance, or worse, a liability. Jot down your daily monetary goals (realism is a key here, keeping in mind that some days are going to be off).

Keep a journal! Include not only the wonderful things you did on any particular day, but also (and more importantly) the areas that you believe need improvement. This is going to serve as your daily checklist and will consistently improve your trading. If you focus on all these things, you'll become more methodical and less reactionary. There's no one more self-destructing than a knee-jerk Forex trader. Well, maybe a bad stuntman...but you get the point.

Forex Strategy

Then there is the Forex strategy. Strategies involve things like Elliott Wave Principles; Fibonachi Tools; Bollinger Bands; and other things that would make good names for rock groups. To develop a Forex strategy for yourself, you need to take the time to study the various tools that are out there. The reason these strategies work is because so many people use them. If a lot of people are doing the same thing and getting desired results, who are you to argue?

Other parts of a Forex strategy involve simple observations. For instance, if you take a look at historical charts of any Forex pair (or any commodities market, for that matter), you'll notice that when a market breaks after hitting its top it can break hard and fast. However, when the market reverses after hitting a low it rarely goes straight up. It rises in more of a wavy fashion. Tidbits like that should affect your strategy as to what kind of time frame trader you are.

Any time you change a Forex strategy, give it a test run in a demo account for a while. When you're trading your money, it always feel better when you're comfortable with the system. A Forex strategy and a Forex plan. Two separate entities of equal value. They take time, thought, and practice. When your trading account increases, you'll know why you did it.