The trade checklist is simply summarized trading plan. It is a plan where you can check the things you require to open a new transaction. It is also your own rule book, which you should follow in order to be ready for trading.
The trade checklist is a personal thing. Your list works for you, but not necessarily for another trader. This happens because everyone has its own strategy that he likes and trust. So the list is for you, created to boost your results.
Why may you need the trade checklist?
It is not a secret that trading is an investment form that brings risk with itself. There are external and internal factors which make the risk even bigger. Those factors are external noises – what we hear from other traders and all the news from the outer world, and internal noises – our own fears, like anxiety feeling before beginning the trade.
Makes you feel confident.
Your trade checklist will assist you in handling both, external and internal noises. You will have your own procedure that you follow, so even if you are confused, just stuck to your list, complete the procedure, and the confidence will come back.
Makes you stick with your trading strategy.
Professional traders know that trading depends more on the strategy than luck. That having your strategy is essential for trading. When you have and follow your own trade rules, more likely you will be faithful in your strategy.
Makes you staying focused.
During the process of trading, you may experience better and worse moments. Sometimes, especially when the market is opposite to what transaction you have initiated, it can be tough on your mental endurance. And here your trade checklist comes in hand. It will keep you concentrated on your targets and will help you be consequent. Using a working trading strategy consistently increases the chances for a profit.
Olymp Trade Wiki Personal trade checklist:
What should you consider when creating your trade checklist?
1. Current market trend.
The current market situation is very important while planning your trade checklist. You must define your market and make a decision to go with or against it. If you are at the beginning of your trading journey, it is usually suggested to trade with current market trend. This way increases the chances for a profit and the other thing is, you do not need a determined opening price.
On the checklist, you may include something like “Trade only with the direction of current trend”.
2. Investment amount.
Your personal trade checklist has also this attitude, that it helps you to take notice of the investment amount. Bearing that in mind, you can keep a close eye on the reward, by reminding you how much you intend to earn. Another thing you have to do is to confirm, that the transaction amount is proper before trading.
You can write on your list for example: “The trade size is correct”.
3. Economic calendar and trading news.
Sure, there is plenty of news that will reach you during your trading adventure. And that is why you must have your trusted source, which will provide reliable news about the market. They might influence your opinion and behaviour, change your decision and help not to lose money.
On the checklist, it could be: “Check adequate news and calendar.”
4. Your physical and mental state.
Good physical condition and proper emotional state are of the utmost importance. You need to take care of yourself in order to be a good trader. Otherwise, your judgment could be inaccurate. It could result in improper market analysis and further in performing a bad deal. All of this almost definitely would end in significant losses.
Be sure you have on your trade checklist something like: “I enjoy full physical and I am in a proper mood to trade”.
5. Reward to risk ratio.
This defines what profit you will gain for every dollar invested in securing the transaction. (4:1 indicates that you can earn 4 dollars for every dollar you risk.)
In order to calculate your reward to risk ratio for a new transaction, you need to know how big will be the profit (reward) if everything goes right. You also need to determine possible loss (risk taken) if your market prediction is wrong. Then your reward to risk ratio is just a simple relation of those two factors.
On your checklist it may sound: “Reward to risk ratio is high enough”.
Perhaps, creating your personal trade checklist sounds a bit difficult or unnecessary at the beginning. But you ought to place your trust in it because it can really help you end up earning money. Don’t forget it is your personal list. It will look different for other traders.
On OlympTradeWiki.com you will find much more information about trading plans and strategies.
We wish you extremely fat gains with your new trade checklist!
Here an example of how the checklist can be used for a technical trading setup: