If you already have a trading plan - thatâs really great. Now itâs time to take one step further and create a checklist. You will refer to it before each and every trade, and youâll enter only if 100% of the checklist is present.
You can have different kinds of trading plan, it can have 5 or 50 pages - and it will describe your overall approach. Unfortunately, when it comes to executing your edge in the market, itâs very easy to bend your rules âjust a little bitâ, and all of a sudden you find yourself taking trade that is only a distant reminder of your actual trading setup.
Most traders will damage their account not because their strategy is bad but because they start to take random set up outside of their trading edge. Blowing the account usually doesnât take more than several hours of emotional trading.
So thatâs why itâs essential to have a short and clear checklist, usually up to 10 sentences usually that describes, point by point, what your trade entry looks like. You can even check every point before entering a trade (I do it). Of course, with time youâll perfectly remember that checklist, but itâs also important to honestly follow it without checking every time, and the rule-following skill itself is a separate topic.
đ©You're trading randomly if you don't have a checklist đ©
Think about it. How many traders are constantly looking for âsomething elseâ, one more strategy. Instead of grinding deep into some specific concept, pattern or trading system, they will run to the next one with the first normal losses. They are running on the surfice for years instead of going deep to the core of trading - which, in my opinion, is the perfection of one strategy.
Sometimes they even find what they like and what starts to show some kind of results. But then some time passes, and after any kind of emotional stress (would it be euphoria after a winner or fear and anger after a loser), he can start to deviate from his rules. A beginner can be so emotional that he can enter random trades, one after another, in the course of a few hours, destroying a big part of his account.
There are a lot of other issues behind such inefficient behavior, however, a checklist is one of the first steps to handling it. Because if you donât truly know what youâre looking for at the market, youâll take the first trade youâll find.
đ©"Right or wrong" mentality is a fundamental flaw đ©
Youâre only right when youâre following your rules, and youâre only wrong when you take random setups. Again: even if you have a loser but you followed your setup - you're right, and even if you have crazy profit but it was a random trade - you're wrong, because this approach is not stable long-term.
Yes, traders do predict the price movements in a way, but only as a side effect of following their rules and executing their system. A trader will not be fixed on his predictions, and because he drew a box or a line, he will not expect the market to obey his colored drawings. A traderâs job is to take a setup based on his experience and testing, and he should let go of the expectations and his trade, managing on the way of course. This is a very deep question, in my opinion, and deserves a separate post later.
Thatâs why next time when youâll see someone asking: âShould I buy or sell sir?â, you can surely tell the person is in the very beginning of his journey.
đ©How to create a checklist? đ©
Take a moment and describe in the short form how does your entry look like. What are your rules for Structure, Zones of interest, what is your entry confirmation, and what is your risk and management? I like to actually checkmark every point before each of my trades, so Iâm sure Iâm following my plan. Hereâs an example of what my checklist looks like:
đBonus for everyone still reading :) If youâre struggling with any discipline issues, ask yourself a question: âIf I would receive a fully funded 100k account, for free, would I start to follow my rules and would I be more disciplined than I am now, and would I start âtrading the right wayâ at last?â Try to be honest with yourself.
It may seem strange, but many novice traders think that something should happen before they will âreally stick to their planâ. It could be âjust one more good winnerâ, or âif only I had bigger capitalâ, or âwhen I finish this yet one more educational courseââ - and AFTER that Iâll do what I know I should be doing.
So, if your answer to that question is yes, then this is a clear indication youâre still in a very beginner mindset. Try to realize that ANY external change will not change the way you are. You need to change yourself FIRST, the way you behave in the markets and your mindset, and then everything external will follow.