Your trading checklist

Mrs R and I have very different attitudes to lists. She likes to give herself a to-do list that’s easily achievable, so when I come along and add ‘big picture’ items to it, she gets very cross. I want to include aspirations on my lists, while she’s just focused on ticking things off.

With that in mind, I’m hoping to keep all list-makers happy by dividing my checklist into the ‘foundation’ stuff (level 1), the ‘right now’ stuff (level 3), and everything inbetween (level 2). Most of the level 1 and level 2 items won’t need to be addressed on every trade, but should be revisited regularly.

Trading Checklist Level 1: The Foundation

• This is all stuff that you should know before you even consider entering a trade. However, it’s not things that you need to tick off before entering every position. You should have addressed all these issues, and know where you are. If any are missing – make sure you can tick them off before you place another trade!

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

• What do you want to achieve? Don’t hold back from ambitious aims.

• What kind of returns are you expecting to make on your trades? Is this a realistic expectation? How long will it take to achieve these kinds of profits?

• How will you record your trading? Do you have a trading journal? (If not, here’s mine.)

• What systems will you use to review your performance? To enhance your strategy? And to search for trading ideas? Try not to get bogged down in just one of these areas – they are all important in keeping your trading on track. Set aside an amount of time that you will devote to this.

• 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? You may not be able to answer this one straight away, but as your trading record builds, you should be able to see positive and negative patterns as you review your performance.

• 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.

• 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.)

• How much time per day/week can you devote to trading? Be realistic here – don’t set yourself up for failure by promising yourself you’ll spend 2 hours a day at your screen when you’re already pushed with other commitments. Are you being distracted in your trading – how can you avoid this?

• 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.

• 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?

• 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.

Trading Checklist Level 2: The Strategy

• 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.

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

• 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.)

• 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.

• 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)?

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

• Will you close out all positions over holiday periods? Will data releases/news stories affect the way you will manage your trade?

• What are your entry triggers?

• What are my plans for exiting this trade, both as a winner or a loss? Are there events that could happen that would cause me to adjust these exit criteria?

• How long do I expect this trade to run for? Will I automatically close out the trade if a certain time limit is hit?

• Am I aware of the longer term trend? How is this affecting my trading decision?

Trading Checklist Level 3: Right Now

• Have I hit my profit target for the day/week/month? If so, I shouldn’t be trading now.

• Have I hit my maximum loss for the day/week/month? If so, I shouldn’t be trading now.

• What is my account balance? (I need to know this to calculate my stake size.)

• How much am I risking on this trade? (This is based on your risk percentage and your account balance.)

• What is my stop loss on this trade? 

• What is my stake size (this will be your risk divided by the stop distance)?

• Where will I take profits?

• Where will I trail my stops to (if applicable)

• What is my risk-reward profile on this trade?

• Are there any key levels blocking my success? Should I adjust my levels due to this, or consider sitting out of this trade?

• Are there any major news items coming up that will affect my trading decisions?