This is a guest post by Cory Mitchell, CMT of tradethatswing.com.
Creating a Checklist for Trading
A checklist for trades helps us follow the strategies outlined in our Trading Plan.
Don’t trade without it. Running through a checklist may only take one second for some traders, or a minute or two for others.
A trading checklist is a written document (may need to be memorized) covering the elements that must be present or not present to take a trade. Checklists, when abided by, reduce mistakes, improve performance, and keep us out of trouble.
Checklists vary based on strategy and time frame.
- A day trader’s checklist may be done mentally in rapid market conditions. It may only contain a few points and take a second or two to go through.
- A swing trader or investor may have time for a more thorough checklist, maybe even physically putting checkmarks on a page for each criterion their trade idea passes.
Here are some things to include in a checklist. Pick or add ones important to your strategy.
- Are market conditions (volatility, trend) right for this trade?
- Are there major news events that may occur during the trade? (Economic or earnings)
- Correct entry point based on your strategy?
- Is the stop loss reasonable for the potential reward? (risk/reward)
- How am I getting out of this trade? (Not a checkmark question, describe)
- Is my position size correct?
- Am I violating any of my Trading Plan rules?
Here are some additional checklist items.
May not apply to everyone. Only use if these issues are causing you problems in your trading.
- Am I allowed to trade? (Not on a forced break due to recent losses)
- Am I placing this order in the correct hours/my established trading time?
- Is it within my max number of positions I can hold at one time?
- Is it within my leverage tolerance?
- Did I find this trade through the proper means? (Not a “tip” but from my own research)
- What should I remember during the trade? (Key point you’ve struggled with recently)
- Am I in the right mind frame for this trade? (Not revenge trading, angry, over-confident)
It’s a big list, but some points may already be answered. A swing trader should know market conditions before they even consider a trade. Checking news is done in the Pre-Trade Routine. We know our entry and exit rules, we’re just confirming them.
More information available through this link: Creating a Pre-Trade Checklist for Swing Trading or Day Trading