The trader’s essential maintenance checklist

Last month, a team of 400 workmen finished the supposedly endless task of painting the Forth Bridge. Apparently, thanks to the super-strong paint, it won’t need another touch-up for 25 years.

The news gives me some hope, when I look at the mountain of repairs and maintenance that need doing on my own home (which has suffered from years of neglect at the hands of previous owners).

Of course, the ideal is to always keep on top of these jobs, but if you’ve let things slide, it can be very hard to know where to begin. I’m not talking about home maintenance anymore – but about keeping your investments in check.

Your trading is like a business, and no credible business would get going without a business plan. So, here’s a trading checklist of the things you should be keeping on top of, and the questions you should know the answer to …

Your objectives, skills and appraisal

1. Why are you trading? Is it for long-term wealth, for a regular income, or for fun?

2. What do you want to achieve?

3. What kind of returns are you expecting to make on your trades? Is this a realistic expectation?

4. How will you record your trading?

5. What systems will you use to review your performance? To monitor existing positions? And to search for new opportunities? Try not to get bogged down in just one of these areas – they are all important in keeping your trading on track.

6. Where do your psychological weaknesses let you down? What steps can you take to overcome this? What are your main strengths – and how can you use these strengths to best effect?

7. Will you measure performance only on profits, or on improved win ratios, beating bad habits etc? Use your trading journal to note whether or not you followed the rules of your trading plan or not.

Money management

8. How much capital will you devote to trading? Is this split across different trading strategies or just one? Is this a percentage of your investment portfolio as a whole, or is this your sole area of investment? (Consider your answers here when you’re working out your risk percentage.)

9. How many trades do you expect to make in a day/week/year? Again, bear this in mind when you’re evaluating your risk profile.

10. What percentage will you risk on each trade? Do you have a plan to increase this percentage at any point, if so, when? (Remember to consider how many trades you will be placing each day, and the subsequent daily risk you’ll be taking with that money.)

11. Will you be taking an income from your trading fund? (By taking out, say 50% of gains each quarter or year, you can protect these profits.) Will you then reduce your position sizes to reflect the new, reduced bank?

12. Will you add funds to your account? Be careful not to fall into the trap of “feeding the beast” – i.e. adding money to meet margin calls or to sustain a losing run.

13. If you experience a run of losing trades, how will you react? What percentage will you tolerate losing before you stop trading temporarily? For example, if you’re down 10% for the month, you could cut your position size in half for the rest of the month. If you’re down 15%, you might stop trading for the rest of the month. If you’re down 25%, it could be time to take a 4-week break from trading.

The trading plan and the practicalities

14. Which markets will you trade? How will you ensure that your risk is balanced across these markets? If you’re concerned about doubling up risk on trades (for example, being long GBP/USD and long EUR/USD at the same time), simplify things and stick to one instrument until you’ve mastered that.

15. How will you use stop losses – will you use trailing stops, or will you move your stops to breakeven (if so, what will be your signal to do this)?

16. What are your entry triggers?

17. How much time per day/week can you devote to trading? Are you being distracted in your trading – how can you avoid this?

18. What timeframe will you be trading, and how long will you hold positions for?

19. Will you close out all positions over holiday periods?

20. Which broker are you using? Is this the best broker for your strategy? You can often boost your returns considerably by shopping around.

If a 20-point trading checklist feels a bit insurmountable, remember that with maintenance, tackle it a little at a time. After all, it’s not painting the Forth Bridge!

Related posts:

Your trading checklist How to use Broken Window Theory in your trading