Implementing a trading checklist is essential to the trading process because it enables traders to maintain discipline, adhere to their trading plan, and develop confidence.
Maintaining a trading checklist provides traders with a list of questions to which they must respond prior to executing trades.
It is essential to distinguish between a trading plan and a trading checklist.
The trading plan focuses on the big picture, such as the market you intend to trade and the analytical approach you intend to employ.
The trading checklist focuses on each individual transaction and the prerequisite conditions that must be met before the transaction can be executed.
Without a checklist, your trading strategy is incomplete. Fantastic if you already have a trading strategy. Now is the time to take the next step and create a list of tasks.
You will examine it prior to every transaction, and you will not enter unless every item on the list is present.
There are various types of trading plans, and their lengths can range from 5 to 50 pages.
Regardless of length, it will describe your overall strategy.
Unfortunately, it is simple to violate your rules "just a little bit" when attempting to gain a market advantage.
You make trades that have little to do with your actual trading setup before you realize it.
The reason why the majority of traders lose money is not because their trading strategy is flawed, but because they begin to trade on random setups outside of their trading edge.
It typically does not take more than a few hours to trade based on your emotions.
Therefore, it is essential to have a concise checklist, typically no more than 10 sentences, that describes your trade entry item by item.
Even before making a trade, you can examine every detail (I do it). Eventually, you'll remember this checklist perfectly, but it's important to adhere to it without constantly double-checking. The ability to follow rules is a distinct topic.
You're gambling without a list
How many traders are constantly searching for "something else" or an alternative trading strategy?
Instead of mastering one strategy, pattern, or trading system, they will switch to another as soon as they begin to lose money.
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They have spent years running on the surface rather than getting to the heart of trading, which is, in my opinion, the perfection of a single strategy.
Occasionally, they discover something they enjoy, and that begins to work.
However, after some time, he may begin to break his rules if he experiences any type of emotional stress, such as happiness after a victory or fear and anger after a defeat.
A beginner can be so emotionally unstable that, over the course of a few hours, he may make a series of haphazard trades that wipe out a substantial portion of his account.
There are many other causes for this type of inefficiency, but creating a checklist is one of the first steps you can take to address it.
Because if you don't know what you're looking for on the market, you'll settle for the first trade you come across.
"Right or Wrong" thinking is flawed
You can only be correct if you adhere to your rules, and you can only be incorrect if you randomly select setups. This is not a stable way to trade over the long term.
Yes, traders can predict the future direction of prices, but only because they adhere to their rules and employ their system.
A trader will not be fixed on his forecasts, nor will he expect the market to follow his colored drawings simply because he drew a box or line.
A trader's job is to take a setup based on his experience and testing, and he must let go of his expectations and trade, while managing the situation along the way.
I believe this is a very profound question that requires its own post in the future.
Before entering a trade, consider the following points.
- Does the market trend or fluctuate?
- Does a nearby level of significant support or resistance?
- Is the trade supported by a technical indicator?
- What is the ratio of risk to reward?
- How much do I have at risk?
- Are there any important economic reports that can influence the market?
- Am I following the trading strategy?
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