When you look at the best performers in any industry, you find out that everyone has a step-by-step protocol that they follow to make sure they will get the best results. Do you want to be a trader? Let’s make sure you build a small list of what you can ask yourself before entering a trade!
The main idea of asking yourself a few questions is to help you get a complete picture of how your trade is going to play out, so you get as much of a stress-free trading environment as possible.
Question #1: What Will Technical Study Tell Me About My Instrument?
This is the most crucial question. I love the art of painting on the charts. When we talk about what Technical Study shows about your instrument, I want to get simple data that matches my potential trade. It would help if you looked at the larger trend, and other any significant area (supply/demand zones or some large fib number), a technical chart pattern, or some candlestick formations.
This part can be different for anyone; I suggest you only use what you fully understand and take a straightforward approach. Yes, you can use the Elliott Wave here, but there is no point in wasting 1-2 hours before each trade to select the next trade.
Only once you’ve completed that first step can you move to the next question
Question #2: What Fundamental Study Tell Me About My Instrument?
Technical analysis is excellent, but you should always know what’s happening in the world. To get a complete picture of what’s going on with your instrument, we will check the fundamental data. I’m the first person who hates reading the news, so my approach is again to get it in the simplest to use form. The main thing that I want to know is this: what’s moving the market today, and do we have any data that can change the direction of my trade?
For the first part, what’s moving the market today, you can find any news site that talks about what you are trading (Bloomberg, Reuters, or just Twitter) and see what’s been driving the market (this takes only a few minutes). After that, just quickly go to any economic calendar you prefer and find out: Do we have any news that can have a substantial impact on the market? The best idea is to track what Federal banks are looking for and check just that, but you can usually check HIGH IMPACT data, too.
We are asking this question to get a slightly better understanding of our trade. If we have some vital data that can change the view and miss our trade, it’s wiser to wait for the data to come, or be aware that at a particular time you should be in front of your screen to make any fast adjustments, if that’s possible.
Question #3: What’s The Reason For Taking This Trade?
The next part is the most important, but should also be asked after the first two to make sure that you have covered the trade from all angles. Here, your goal is to prove to yourself that you have a good reason for why you want to place that trade. So when the time comes, you won’t have any second-guessing.
Quick Example: I’m looking to trade the EURUSD pair; the technical and fundamental picture shows a more bullish overview. Looking to enter a “Long Trade” at 1. xxxx level because “System Name” shows a strong buy zone.
Question #4: What’s my Risk Plan For This Trade?
Risk can often be overlooked, so I strongly suggest you have it on your list of questions. To answer this question, you are looking to get few things: What’s the risk-reward of my trade? What is my risk per trade? What’s my current risk per day? What position size should I use?
Question #5: How Other Correlated Instruments Align With My Trade?
This part is optional, but I highly recommend it since it will help you on your path to becoming a successful trader. The idea behind this question comes from the fact that most everything in trading has a reasonable correlation. So quickly checking one or a few pairs that have good correlation and seeing if you get the same direction should be a big help. Look at that as additional confirmation for your trade.
Question #6: What’s My Backup Plan?
What’s your backup plan can sound a little bit wrong since you have done your study and everything is telling you the same thing. But asking questions will prepare you for the worst-case scenario! You won’t always hit a winning trade, but if you prepare yourself for every situation, it’s going to be much quicker to recover from any losing trade and to end your day or a week in profit.
Try to make a backup plan for each of your trades to see what you can do if something goes against you, and how you could recover sooner. This can be, for example, if my EURUSD long trade doesn’t work, I’ll look for the break of the channel EURUSD below 1.xxxx level and look for short trades. Or you can look for opportunities in other instruments.
Like you figured out from the list of the questions above, I try to make a quick checklist for myself to have a more confidence when the time comes to place my order. You don’t need to use the same list of questions as me, but you should definately start building a list of the things that will help you become a better trader and improves your win rate.
I hope you enjoyed this small article. If you have a good idea of what else should be on the list, you can leave it below in the comment section.