What Is the Importance of a Pre-Trade Checklist in Trading?

trading checklist


It is not just consistency, discipline and perseverance that are important when it comes to trading. You must have the ability of multitasking, too. As an online trader, you must know how to analyze the market, read the signals and perform technical or fundamental analysis. For that you need a good internet, like Cox internet. All of these tricks and skills develop with time.

For starters, it is extremely hard to juggle. You are prone to make mistakes but if you don’t get a hold of yourself, you can lose your investment. This is exactly why all traders are advised to use a pre-trade checklist. It guides you and helps you boost your trading performance.

What is a Trading Checklist?

A trading checklist is like your action plan. But it is different from what we call a trading plan. A trading plan outlines which market to trade in, how much capital to use, what charts to use, how to manage risk etc. A trading checklist, on the other hand, consists of a list of signals of criteria that a trader needs before entering a trade. It is a field for traders since they have to repeat some processes and patterns over and over again.

Planning Your Pre-Trade Checklist

If you don’t have a pre-trade checklist, it’s time you plan one.

These tips will help you out:

  • Have you planned where you will get in? I.e. what is going to be your entry price? Also, is that the entry price far from the closing price?
  • Do you know when and where to place the initial protective stop? Ask yourself if that stop is outside the normal volatility. Make sure it is not at a level where you may be wrong.
  • Do you need to make yourself familiar with any events over the anticipated holding period? You don’t want to be holding the trade longer than expected.
  • Are there any liquidity concerns that can affect the execution?

How to Set Up a Pre-Trade Checklist?

To create the right trading strategy, you need painstaking research and of course, you will get better with time through trial and error. But with a pre-trade checklist, you are able to lay out conditions that must be aligned anytime you enter into a trade. It must outline the amount of capital you want to invest, your risk and reward strategy, stop loss, set up conditions, position size and more.

Perhaps this information will help you set it up:

  • Filter the news: Check the news and scan the headlines for stories that will uncover new market opportunities. Find news regarding open positions.
  • See what fellow traders are doing: It’s very important to figure out where your competitors are risking their money. The next thing you need to do is check open positions, stock reports, and commodities that might react to the geopolitical events.
  • List down the key levels: List down the key numbers of major instruments. Make sure the data is placed right in front of your eyes so that you can make the decision there and then during the session.
  • Look for the pre-market levels: Where are the underlying funds trading in the pre-market? These levels can yield breakdowns and breakouts in the session.
  • Identity a safe exit: You must find out safe exist in the pre-market. You may not be able to access real-time quotes until 90 minutes before the market opens. This data will help you generate favorable exists.
  • Don’t follow the crowd: Just because you must know what your competitors are doing, doesn’t mean you start following the crowd. Wait for others to play their cards and then identify cheap entries for yourself.

How Can This Checklist Boost Your Performance?

They say that a pre-trade checklist makes you better a trader. Its purpose is to keep you focused. It helps you keep acting according to the plan.

You basically identify opportunities that assist you when you are actually in the field. You gain confidence in your trade ideas. Even if you face a situation that’s not ideal, you will still know what to do. You won’t have to waste time panicking.

Once your pre-trade checklist is set into place, it must become an integral part of your trading. You will experience that it leaves a positive impact on your trade.

The only way this check-list will improve your performance is if you focus on these:

  • Make sure it’s visible: This checklist must be visible. Don’t hesitate affixing it to your monitor so that it is always there. This way, you will follow it routinely.
  • Read out loud: Read the conditions on the checklist out load while evaluating each trade. Answer the questions like you are sitting in an interview. This will help you analyze whether or not you are making the right choice.
  • Use it for documenting your trade: As you know, it is always a good practice to document your trade. While doing that, you can use the pre-trade checklist as a trading point. This will give insight into whether or not something needs to change.

The Bottom Line

Every trader must follow a pre-market routine. It sets the stage and prepares you for the day. Once you have a comprehensive checklist in place for CFD stock trading, you will experience the benefits yourself. Things will start following in the right place. If you don’t have a checklist, you better start preparing one right away. Otherwise, you will just miss out on a lot of good stuff.

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