Reasons why Making a Trading Checklist is Important

Trading has forever been a risky business; you can never honestly know what might come at the very next second. Therefore, a trader is required to be smart, disciplined, consistent, and able to manage several tasks at once, such as conducting technical analysis, analyzing market, reading signals, making decisions in a moment. For these reasons, trading is often compared to battles. We all know what happens to those who charge forward without any plan. That is what a trading checklist can be compared to a strategy to execute your plans and reach your goal.

A trading checklist is a brief from of your trading plan, so do not form a misunderstanding that the trading plan and trading checklist is a similar thing. While a trading plan is an elaborated agenda on how you want to approach the market, defining all aspects of your trade, the trading checklist on the contrast is a simple tool that helps you to implement that on live. A trading checklist is something entirely personal; you customize that while keeping what type of trade and the strategy you chose, in mind.

Since each trader has their strategy laid out, the trading checklist also cannot work effectively for just any two. It is unique to every trader, which alone makes it more relevant to put more emphasis on that because it can be your key to success, and messing it up can result in losing capitals.

This article is going to be a description of trading checklist, its importance and should be kept in mind while creating one. Bear with me.

Why should you make a trading checklist?

Even though I’ve been blabbering about this for the past few minutes, let me go over this again for the formality’s sake, and this time with more decorated words.

  • Trading checklist makes you highlight the vital parts of the trading procedure. You already know what your goal is, which is to maximize profit. All that is left is to achieve that, which is where strategies and checklists come in. While creating the list, you learn to prioritize the process over the outcome, which helps you to be successful in the long run.
  • After you make a checklist, that means you have researched the trade from different and each aspect and has a positive solution to that, that kind of knowledge makes you feel comfortable and ready about the trade. It enables you not to panic and assess the situation better when the trade takes a different route or when you need to make a decision immediately.
  • Trading checklist makes you focus on the goal you set. If you stay true to your plausible trading strategy, not much can go wrong in your trade; even if it does, you will know what to do.

Factors you should keep in mind while tailoring your trading checklist

  • Direction of the trend: While laying down the setup, check the market if it is trending or ranging. If you’ve been a trader for quite some time and have experience, you already know where a strong trend can take you if you can utilize it. Long and short, both types of traders have the upper hand when a trend is ongoing. Several markets tend to trade in a ranging market, too, where the prices juggle between resistance and support level. So, considering the direction of the market is a must.
  • Consistent with your plan: Your performance and outcome both depend on how you choose to act during the trade. So while starting to assess the market’s condition, the asset you’re going to trade and the instrument you intend to use, also the time frames, every step is just as valuable as the other one. Measure them accordingly.
  • Risking the capital: Risking the capital is a matter that is always on board, no matter how good your strategies are. How is this relevant to trading checklist? Because with proper risk management, even if things start to go left, you can minimize the damage, or you can also turn it to your advantage if you’re in luck. So, while focusing on that, you should remember to keep your winning ratio in mind, also how much you’re willing to lose, the risk-reward ratio, for this purpose you can use some risk management instruments.
  • Amount you’re willing to invest: The to-be invested capital is another critical factor that you should keep in mind while deciding how you’re going to play. Depending on that, you can determine how much profit you should aim for.
  • Make yourself up to date with the recent news and announcements: Recent news can put impact on the present market, they can start a trend and end it, so being updated with them keeps you one step ahead in the game. You can make the checklist according to that, and be on the first row to win and also avoid losses. So check on trade-related announcements beforehand.
  • Double-check the numbers: When a trader accidentally makes a typo while making a trade that does a lot of permanent damage. So check the numbers before entering, as many times you wish but never unchecked. There are plenty of stories of money ending up in the wrong place because of a typing mistake.
  • Plan both entry and exit: You should have your entry and exit planned, knowing where and when exactly you want to enter and leave can help you avoid losses and earn more profits. At this topic, it is crucial to talk about stop-loss order, by placing it on a level that looks logical enough to you can stop a trade automatically upon reaching a certain point and manage your risks.

Conclusion: As evident, it is, the process is not short, and I’ve only discussed the basics. It would help if you also kept it in mind not to make the checklist too complicated. Make it, so it is straightforward and easy to follow. Following your goal is the key.