Creating and maintaining a trading checklist is essential for traders to stay disciplined, stick to their trading plan, and build confidence.
A trader’s trading checklist can be created from a simple list of pre-trade steps that need to be done before executing any trades. These checklists can help to remove mind clutter and get the trader focused on their preparation for the day.
DISCLAIMER
Trading is a high risk activity, protect your capital through the use of stop loss, making intelligent use of leverage and not investing more than you are willing to lose. The author of the post declines any responsibility for any losses incurred as a result of decisions made after reading this article. The information contained below is for informational purposes only. CFDs are complex instruments, therefore adequate knowledge is required before making any investment. Thank you for your kind attention!
6 Step Trading Checklist: Are we in a trend or in a range?
A ranging market is a price that moves back and forth between higher and lower prices, forming an area of support and resistance. A trending market on the other hand is one in which the price is moving upwards or downwards at a constant pace.
Range markets are usually characterized by low volatility. They also tend to be a bit more difficult to trade than trending markets as the price bounces off of support and resistance levels.
To trade a ranging market, you need to identify the strongest support and resistance zones within that range. A good way to do that is by using range-bound lines like Pivot Points or envelope-type volatility indicators, such as Bollinger Bands.
Ideally, these indicators will highlight the strong points in a range and show when price is likely to break out of that range. You can also use momentum-based indicators, such as the RSI, to pinpoint the moments when price has reached unusually high levels of momentum within that range.
Traders should avoid entering trades in a ranging market because it can be difficult to identify optimal entry and exit points, which can limit profits. They should also avoid taking large positions in a range because of the risk of losing money on each individual trade.
Let’s check significant level of support or resistance
Support and resistance levels act as barriers in the market that prevent prices from going too far in one direction or the other. They can be identified on any time frame, but they’re most important in longer time frames like daily and weekly charts.
Usually, traders will use a combination of indicators to identify support and resistance levels. They can include moving averages, trend lines and channel lines.
However, there are some other techniques that can also be used to determine these levels. Some of these techniques include Fibonacci retracements and round-number S&R levels.
This type of analysis is useful for identifying a significant level of support or resistance in the market, as these levels can provide clues about where price may pause and reverse if a long-term trend changes. This type of trading can be very profitable, especially if it’s done correctly.
Another way to identify these levels is to look at a price chart and try to find where the price has stopped and reversed in the same price area on two occasions. This is a strong indicator that the market is struggling to break past this area, so look for any entry points near this area.
6 Step Trading Checklist: Is the risk to reward ratio greater than 1?
The risk to reward ratio is one of the most important trading concepts you should understand before entering any trade. This is because it can help you determine whether a trade will work or not.
The risk/reward ratio is a mathematical formula that compares the potential profit to the potential loss of an investment. This can be used as a tool to compare different investments and choose the one that best fits your risk appetite.
When calculating the risk/reward ratio, it is important to remember that securities can both rise and fall in price. This means that you may end up losing a significant portion of your capital if you are not careful with your trades.
It is therefore a good idea to set your stop loss and target profit levels before entering any trade. This way, you know exactly how much you should lose if the trade doesn’t work and can ensure that your risk-to-reward ratio is as low as possible.
Using the risk/reward ratio as a guide will help you avoid making expensive mistakes that could lead to a significant loss of your capital. It is a valuable tool for any investor but it is important to note that it cannot protect you from a large loss if you are not careful with your trades.
6 Step Trading Checklist: What do the indicators tell us?
Indicators are a form of technical analysis that is used to predict financial and economic trends. They are based on the prices, volumes or open interest of a security.
For example, an indicator can be a simple moving average (MA) or the moving average convergence divergence (MACD). They can be used to predict trend direction and levels of support or resistance.
Another indicator is the average directional index (ADX), which is an oscillator that shows the strength of the current trend. ADX values range from 0 to 100, and if it is above 20, then the trend is strong; below 20 is weak.
It’s a lagging indicator, meaning that it takes longer for it to give you a signal than so-called leading indicators. However, because it takes more time to calculate the information it needs before giving you a signal, it tends to be more accurate.
In trading, traders often look for an overbought or oversold signal. This can be achieved by checking the stochastic indicator or other trend indicators such as the relative strength index (RSI). If a trade is oversold, the stochastic indicator will fall from above 80 to below 50, whereas a buy signal is given when the indicator rises from below 20 to above 50.
Is there any major economic news that could jeopardize my positions?
Before entering any trade, it is essential to ask yourself whether there are any significant economic releases that could affect the market. These releases can be anything from a single number to an entire series of data points that can make a difference in the price of an asset.
These releases can be the Unemployment rate, GDP, Retail Sales and CPI indices. These can be extremely important to traders as they can give them an indication of how strong the economy is.
If the release differs significantly from the consensus it can cause a major disruption in the affected asset’s price. This can be positive or negative depending on how much different it is from analysts’ expectations.
This information is usually available on an economic calendar and can also be found online. The calendar will list the date, time and country of the release and will show how important the release is likely to be on the market.
Many traders blow up their accounts by leveraging them to the max when they are chasing “sure things”. This can be avoided by limiting the amount of capital used in a single trade and setting stops on all trades so that the total amount risked is no more than 5% of the account balance.
Am I following the rules and the trading plan?
Whether you’re an advanced trader or a beginner, you need to ensure that you have a clear trading checklist before entering any trade. This will help you to avoid impulsive trades and make better decisions while trading.
The first step in creating a trading checklist is to determine your motivation for trading. This can be for a variety of reasons, such as making some extra cash or achieving a particular financial goal.
Another important part of developing your trading checklist is to identify your beliefs and values as a trader. These will propel you across obstacles and remind you of your main reason for entering the market in the first place.
You also need to consider your risk appetite, which is essential in deciding whether or not you are willing to take on a certain amount of risk. Traders should remember that they should not risk more than 5% of their account balance in any single trade.
The markets are fast and change, so you need to be prepared to adjust your trading plan. This is an ongoing process that should adapt as you grow and learn new strategies.