WHY SHOULD YOU USE A TRADING CHECKLIST?
Using a trading checklist is essential in the trading process since it encourages discipline, helps traders follow their trading strategy, and boosts confidence. Keeping a checklist gives traders a list of inquiries they must respond to before making transactions.
CHECKLIST FOR YOUR TRADING
Before starting a deal, consider the following:
- Is the market trending or ranging?
- Is there a considerable amount of support or resistance nearby?
- Is there an indicator supporting the trade?
- What is the ratio of risk to reward?
- How much money am I putting at risk?
- Are there any major economic releases that might influence the trade?
- Am I sticking to the my plan?
1) IS THE MARKET TRENDING OR RANGING?
Trading in the direction of a strong trend might result in higher probability deals, as experienced traders are aware.
There is a common belief that trending markets may save traders from losing trades. The trend would continue to provide more pip opportunities to the downside than the upside, as seen below, even if a trader launched a short trade after the trend was firmly established.
Investors should consider if a strong trend is developing in the market and whether “trend trading” is included in their trading strategy.
Price in ranging markets often oscillates in a channel between support and resistance. Several markets usually move in ranges, such as during the Asian trading session. Traders concentrating on range trading might benefit significantly from oscillating indicators (RSI, CCI, and Stochastic).
2) IS THERE ANY SIGNIFICANT SUPPORT OR RESISTANCE IN THE AREA?
For a variety of reasons, the price action tends to respect certain price levels, and being able to locate these levels is essential. Investors don’t want to hold a short position after the price has fallen to the crucial support level to see it rise again.
The same is true when the price is headed toward a crucial point of resistance and usually declines immediately after. Typically, trend traders watch for persistent breaks of these levels to sign that the market could begin to trend. Conversely, range traders will watch for prices to bounce repeatedly between support and resistance.
3) IS AN INDICATOR CONFIRMING THE TRADE?
Traders can confirm high probability transactions with the use of indicators. Depending on their trading plan and method, traders will have one or two indicators that support their trading approach. Avoid the pitfall of making the analysis too complicated by using many indicators on a single chart. Keep your analysis neat, straightforward, and quick to scan.
4) WHAT IS THE RATIO OF RISK TO REWARD?
The ratio of pip traders who will risk hitting the objective is the risk-to-reward ratio. Our Traits of Successful Traders study, which examined over 30 million live transactions, found that winning traders were roughly three times more likely to have a favorable risk-to-reward ratio than those who did not. A 1:2 ratio, for instance, indicates that a trader is taking on half the risk of the potential reward. This idea is further shown in the picture below.
5) WHAT AMOUNT OF CAPITAL AM I RISKING?
This is a crucial query that traders must ask. When pursuing “guaranteed things,” traders often blow up their funds using the greatest leverage. One approach to prevent this is to keep all transactions’ leverage at 10 to one or fewer. Other valuable hints include setting stops on all transactions and ensuring that the total amount risked is less than 5% of the account balance.
Ask yourself, “How much capital should I use?” before making a deal.
6) ARE THERE ANY MAJOR ECONOMIC RELEASES THAT COULD AFFECT TRADE?
The “ideal” transaction might be invalidated by unexpected market news. While predicting terrorist attacks, natural catastrophes, or systemic breakdowns in the financial markets is almost impossible, traders may prepare for economic releases like those for the NFP, CPI, PMI, and GDP.
7) AM I FOLLOWING MY TRADING PLAN?
All of the above is of very little use if it does not tie in with the your plan. Disrupting the trading process will only provide inconsistent outcomes from deviating from the trading strategy. Follow the trading strategy and don’t make any transactions until the trading checklist has been finished, and the deal may be done, if necessary.