You can easily assess how safe a trade is by using this easy checklist. This is a surefire way to make sure you don’t take any unnecessary risks.
Before you make any trade, simply check these 5 rules:
1. Strategy
Be clear about which trading signal you want to use and only open your trade after you have received the signal.
If you don’t have a strategy yet, it’s a good idea to first develop one using a demo account before you actually start trading. Various trading signals you could use include:
- A false breakthrough of the resistance level
- The RSI indicator is in the oversold area
- A negative report on a country’s GDP
- An intersection of two moving averages
Once you have a signal, check the rest of the checklist.
2. Emotions
Only trade when you’re confident and calm. Any strong emotions while trading are not good and will make your trading less effective.
You won’t be able to assess the situation critically if you feel anger, resentment, excessive enthusiasm, or even excitement. A trader should always strive for a regular pulse and a cool mind.
If your find that your heart is beating fast and your emotions are running high, don’t open the position, but rather take a short walk or relax for a while. If your emotions are under control, continue with the checklist.
3. Trend
Look at the chart closely and find the short and long term trends that can be used to make a trade.
If you want to protect yourself against losing trades, you’ll need to believe in the strength of the trend and then follow it. Look at the direction the asset’s price has been moving during the last hour, 4 hours, day or week.
If your strategy does not highlight any signals to show that the trend might change, trade with the trend.
4. Money management
The amount of any trade can’t exceed your daily limit, which should have been setup in advance.
If you have set the limit to 10% of your funds per day, the amount you trade should never exceed this level. If the trade amount is in line with this rule, go to the next step.
5. Time
Double check to make sure this is the best time to make a trade.
Traders often don’t choose the right time for making their trade, e.g.:
- Periods of low volatility, e.g. right after the US trading session closes, or at the end of the Asian session.
- Before company’s financial report is released (when trading stocks).
- 10 to15 minutes before or after the release of some important news.
Don’t trade at the times listed above, as it is more difficult to make winning trades during these periods than what it would normally be. Trade at different times.
If you have checked these 5 points and no condition has been violated, open the trade and earn your profit.
Even with these powerful filters, you may fail from time to time, but the checklist will help make your trading more profitable and disciplined.
Print or bookmark this page so you can always use the checklist when starting a new trading day.