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Don't Open a Trade Unless These 5 Pre-trading Criteria Are Satisfied

Posted by Fullerton Markets on August 12, 2021 at 10:08 AM


Do you want to avoid mistakes when trading Forex? 

While great investors and traders tell you that mistakes play a part in creating a successful trader in you, you should definitely minimise them. Otherwise, your account will explode to an irretrievable extent.

How do you avoid such a nightmare, then? 

With a sound trading plan, of course. But if you're like some traders who deviate from it once in a while, you'll still be plagued by mistakes. 

Here's an effective solution: follow a trading checklist religiously. 

Before you open a trade, go through your list and make sure every element on it is satisfied. Do this every time, without fail, and you can effectively protect your account. 

What is a Forex trading checklist and why should you use it? 

A simple analogy would be filters of an e-commerce shop. You select certain criteria such as location, payment option, and size to ensure that the products you buy meet your specifications. 

A trading checklist works in a similar way. It will help you carry out any process with maximum efficiency and eliminate errors. It will also help you execute a trade that is set up with discipline and without emotions involved. 

As you may already know, emotions can interfere with your trading decisions and increase your exposure to risk. So removing it from the equation will protect your account. 

Moreover, a trading checklist will help you ignore the external and internal noise that can cause confusion. If you listen to what other traders are saying or let your greed control you, for example, you're likely to make a mistake. 

Just to be clear, a trading checklist focuses on the individual trade while a trading plan gives you a view of the big picture. Your checklist verifies that certain conditions are met before you trade. Your trading plan tells you what analytical approach to take, for example. 

What should go into your trading checklist?

image of a checklist with an orange highlighter and cap on either side of it

1. Mental and emotional state

It's important that you're in the right state of mind when you trade so you'll make the right decisions. Do you remember what emotion does to a trader? This is why it's vital that you execute each and every trade based on logic and not anything else. 

On that note, run a mental and emotional check at the start of every trading day. 

  • Are you stressed, happy or sad? 
  • Did you sleep well? 
  • Are you still reeling from yesterday's loss or have you moved forward? 
  • Do you feel relaxed and ready to start another profitable day? 

Make sure you're in a stable mental and emotional state each time before you trade. 

2. Trading criteria 

Are all the trading criteria you set present? These may include currency pair, market condition, strategy, and your trading plan. 

For example, the currency pair you're most familiar trading with is gaining strength and the market is trending, which is suitable for you as a trend trader. You then look at your trading plan which requires that you only buy if sentiment and price action are bullish, and support, RSI, and the MA slope all indicate a buy. 

If one of these criteria is not present, don't trade. You don't need to trade daily. Rather, you trade because the conditions are right.

Here's a helpful tool to help you identify currency strength

3. Stop-loss

Make sure you identify and set up your stop-loss before you open a trade. Failure to do so will increase the risk of you placing a stop-loss based on your emotions. You also need its value to calculate your lot size. 

4. Lot size

Did you calculate your lot size properly? If you simply used the drop-down menu on the MT4 or MT5 platform because you're feeling lazy, then you don't know how much of your trading account you're actually risking. So choose the appropriate lot size before you execute a market order or pending order. 

5. Risk-reward ratio

How much capital are you risking? How much do you stand to profit if a trade works out? The answer to these questions will help you manage your risk efficiently. A 1:2 ratio means you risk $100 to gain $200. 

Start with this set of criteria to minimise your risk exposure on the Forex market. As you go along, you can add more items to your list that will help you develop the right trading discipline and make a consistent profit. 

Remember, if a setup doesn’t satisfy your 5-point checklist, don’t trade. Tomorrow will be another trading day. 

One more thing...

Once you've opened a trade, let it run. Don't micromanage the charts in hopes that the market will move in your favour. You've already rolled out your plan and activated your "filters." Now leave the market alone and let it work for you.

 

Ready to grow your wealth from the world's largest financial market? No better place to start than right here with us! Start trading with Fullerton Markets today by opening an account:

 

Open LIVE Account

 

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