The 7 Things You Should Check Before You Place A Trade
Trading can be nerve-racking!
The act of placing and managing a trade is a nail-biting experience, and is largely driven by the competing forces of fear and greed.
So, wouldn’t it be nice to know how professional traders and investors approach the markets with such steely-eyed discipline and consistency?
What if you had a checklist that would keep your mind right and your trading performance improved?
Well, now you do!
Here’s my essential checklist I use before I open ANY trades…
Become A More Disciplined & Consistent Trader In 7 Simple Steps
Consistency Check #1: What time frame will you use to make your trade?
I like to trade the 4H and Daily charts.
But I also like to drill down to the smaller time frames to potentially find a better entry, or an even better risk reward ratio.
You need to know the time frame you’ll use before you even consider any trading setups.
Consistency Check #2: Which strategy will you trade?
I personally trade using Price Action & Candle Patterns.
There are a few crucial elements to trading this way, and I particularly like learning candlestick formations and mastering them. I particularly like to trade pin bars, fakey’s, and inside bars.
This is what works for me.
You need to have a fully defined strategy that you trust completely, and know the numbers behind.
Remember, you will lose money trading, but it’s about knowing the numbers behind your strategy so that your winners outweigh your losers and you ultimately make money.
If you don’t have a strategy, this whole process becomes null and void!
Consistency Check #3: What is your potential entry setup?
What triggers a buy signal for you?
You need to know what your potential entry setup is before you even consider a trade.
I like to look at price action and candle patterns forming on:
- Proven Support / Resistance levels
- Proven trend lines
- 8EMA or 21EMA.
Again, this is what works for me – It’s my defined approach that I’ve back tested for years.
Without a defined approach, you’ll end up taking trades that don’t fit your system, and when you do that you’re just gambling.
Consistency Check #4: What conditions will signal your entry trigger?
The conditions you look at will dictate whether or not you’ll get an entry that fits your system.
Are you a trend trader?
Do you trade on momentum?
Are you a breakout trader?
These conditions will make sure that the ship you’re sailing is going in the right direction.
Trading a strategy that suits you in the wrong conditions only ends in losses.
The conditions I personally like when I trade are:
- On break of nose, or
- On 50% retracement
- On close of Fakey pin bar, or
- On 50% retracement, if wick is too long
- On break of mother candle
Consistency Check #5: Where will you place your stop loss?
Stop losses are crucial to limiting your downside when you trade.
If you’re placing positions without them, you’re gambling, and more importantly you’re asking the market to take your money away from you.
Don’t take unnecessary risks by omitting a stop loss.
Personally, I like to set my stop losses when there’s clear support and resistance levels which coincides with Pin bars, at the bottom of a wick on a Fakey, at the bottom of the wick on an Inside Bar, or at the bottom of a mother candle.
Consistency Check #6: How will you take profit?
You need to have a defined approach to where and how you take profit from your trades.
This can largely come down to your risk reward ratio.
I like to initially aim for 3:1 risk reward ratio, and adjust to nearest support/resistance level.
I never trade with a risk reward ratio of less than 2:1 (this is even something I’m still consistently back testing).
Consistency Check #7: Will you exit before your stop is hit, and if so, based on what signals?
There are certain circumstances where you should exit your trades before you hit certain levels.
In most cases these are exceptions, but they do happen.
There are slightly smaller instances where this could happen as well, but I’d suggest not tinkering with your levels until you're absolutely 100% sure and comfortable with your strategy and its parameters.
There are certain times I exit trades before my stop losses are triggered, such as a strong reversal in the price action of candle pattern, or even in the midst of a big news report.
How Being Disciplined Can Make You A More Profitable Trader
Remember when it comes to your trades you want to be relaxed, simply because all the work has been done before your entry, and not during your trade.
I’m relaxed and composed when I trade because of this. Novice traders are nervous before they trade and reckless during their trades.
Never modify variables during a trade or trading session unless you have full confidence in the parameters of your strategy and a knowledge of the market.
Use my check list to become more objective and less emotional when you trade.
Ultimately it’ll help you to deal with what the market throws at you, rather than making decisions that aren’t calculated.
Until then, here’s to profitable trading.
Analyst, The Currency Club
The Money Lab