Having a checklist to follow before every trade is a great technique, especially if you are a novice trader. It will help you prevent rushed decisions. If you notice that your trading is highly influenced by emotions, this approach should definitely improve your strategy.
Checklists are an important part of almost every profession and help to keep things done in order. Following a checklist and maintaining a strict order is practically a guarantee of an organized workload. By putting tasks and organizing them on paper we also organize our mind and keep track of the progress.
It can and should be applied in trading as well: there are many benefits to checklists and probably the most obvious one is their simplicity. There is nothing easier than just sticking to a plan that is already written in front of you. Use the following helpful tips to make your own personalised checklist to go by when opening new deals.
1. Market assessment
What are the conditions of the market you are about to trade? The outcome of the deal depends on your ability to evaluate the conditions that you are currently dealing with.
In the checklist you may put such points as the direction of the market and strength of the trend and based on that make the decision about the timeframe you will be trading and the strategy you will implement.
Your checklist may be as detailed or as concise as you like. Depending on your preferences, you may include, indicators, support and resistance lines or certain market news sources in the checklist, so that you would not forget to check the information and take it into account.
2. Deal specifications
Continue your checklist with a second section that will be more specific to the deal you are about to open. Here, the points you may write down would be the investment amount, stop loss and take profit levels as well as the timeframe for a particular deal.
Your decisions should be documented, this way your checklist will be helpful long after the deal is closed. You will be able to look back and assess your trading patterns and choices.
3. Risk management
The third part of the checklist is the last but just as important one. This is a “control yourself” section where you get to double check everything one more time before you actually execute the order. The points in this section will help you to control your deal from a risk management point of view. Is the amount you are about to invest rational? Did you set the limits so that you exit the deal on time? If the deal closes out of money, can you afford it?
Going back to double check those things may seem time consuming and excessive, but it is really important to do so in order to make more conscious and rational choices.
Having a checklist will help you take your time and evaluate the deal you are about to open without the emotional component that prevents many traders from making considered decisions.
