Before You Place Your Next Trade, Ask Yourself These 10

Questions
Technical Analysis Checklist:

1. Did I draw in key levels and trends?

Did you zoom out to the weekly chart time frame and begin the process of identifying the key long-term horizontal
support and resistance levels?

Did you identify the current long-term / overall trend or market condition? Is it up-trending, down-trending or moving
sideways in a large range on the weekly chart?

2. Is there a signal?
Next, is there something worth trading here? Is there an OBVIOUS price action signal that fits in with the current
market picture? Meaning, does the signal ‘make sense’ with what the market is doing? For example: if there’s a strong
uptrend in place, you are only considering buy signals, no sells. Or, if the market is range-bound you may be
considering buy signals from support and sell signals from resistance. We are essentially asking ourselves IF there’s
a suitable entry here, be that a price action signal or simply a ‘blind entry’; remember, we need two out of three: Trend,
Level, Signal, ideally all three, but sometimes you’ll only get two of them lining up.

Most importantly, if an obvious trade setup doesn’t jump out at you on the daily, 4 hour or 1-hour chart time frame
within a few minutes of looking (assuming you have honed this skill), then it’s time to move on, there’s nothing worth
trading that day.

Remember, being flat (or neutral / not in the market) IS a VERY profitable position relative to taking a low-probability
trade and LOSING MONEY.

3. Is there confluence of factors / evidence?

I touched on this briefly above, but it’s so important it needs re-hashing…

If you have identified a trade signal, even if it’s an obvious one, you need to ask yourself if it is also a confluent trade
setup? Meaning, does it have OTHER supporting factors behind it other than just the price bar itself? Does the trade
setup make sense in the context of the story the price action is telling you? If it doesn’t, you may want to walk away
from that signal. Remember, this filter / checklist is in place to make sure only the best trades make it through, think
of it as a way to filter out all the garbage, leaving only the ‘pure’ trades. You are going to have lost trades no matter
what, but our goal as traders is to improve our performance as much as possible and limit losses and draw-downs,
well a checklist like the one you’re reading about is how that’s done .

Mental / Psychology questions:

4. Am I in the right state of mind to enter this trade?

Are you in a calm, collected and overall objective state of mind before you enter this trade? Did you enter this trade
for the right reasons or is it a revenge or greed-fueled trade? You will have to be honest with yourself here obviously,
and you will have to act on that honesty, otherwise it’s a waste of time. Remember, you are delving into the trading
world where there is no boss, no one is looking over your shoulder to keep you accountable. You must do the right
thing when no one else is looking – trading is perhaps the ultimate test of one’s character!

Some other things to consider are: Did you just come off a big winning trade that may be inflating your confidence in
your trading abilities to an unsafe level? Traders often lose money because they get overly confident and this causes
them to take bigger / more risks in the market. Remember, you’re only as good as your last trade, so stay focused and
remain in the proper trading mindset or your last trade might negatively impact your next one.

5. Am I mentally and financially prepared to accept this risk?

Ask yourself before entering a trade, are you mentally prepared for the results of the trade, win or lose? This is where
trading education great Mark Douglas shines, he gets in-depth into the psychology of trading and really hammers-
home the point that every trade’s outcome is essentially random, a 50/50 shot, and that is how you need to view it.
However, that doesn’t mean that overtime, over a SERIES OF TRADES your edge is only 50/50. It means that there
is a random distribution of wins and losses for any given trading edge. So, you could have 20 losses in a row followed
by 40 winners in a row (rare, but possible). However, that is a 66.6%-win rate over the series of 60 trades. But most
traders cannot mentally withstand even a few losses in a row, let alone 20, do you catch my drift here?

You must remember that any one trade, looked at in a vacuum / apart from the rest, simply doesn’t matter. As a result,
you need to think and behave in agreement this fact. Meaning, if you are analyzing your trading performance, you
cannot care AT ALL about any one trade, it is the overall results, the series of many trades that proves your
performance. It will do you a WORLD OF GOOD to remember these points every time you’re about to enter that next
trade. This attitude and approach are part of my set and forget trading philosophy. Remember, you must let your
trading edge play out san’s interference on your part, otherwise you cannot properly gauge its performance over-time
as a trading approach.

Money and Trade Management Questions:

6. Do I know my per-trade (1R) risk amount?

If you don’t have a pre-determined risk amount where (1R = dollars risked), you are probably not making money as a
trader. You need to sit down and determine how many dollars or euros or pounds or whatever, you can realistically
afford to lose per trade. Make this an amount you could potentially lose 10 to 20 times in a row and still be financially
and mentally stable. I always tell traders to do a simple sleep test for risk, in which they let their ability to forget about
their trades and sleep soundly determine if they’re risking a healthy amount for them, or not.

7. Did I use position sizing properly?

Did you apply the correct position size to the trade? This goes together with question number six, above. If you don’t
understand position sizing, please read my article on risk reward and position sizing, to learn more. But, to put it
succinctly, position sizing means adjusting the number of lots (your position size) to meet your pre-determined 1R
risk amount per trade whilst considering your stop loss placement, which we will talk about next. Always
determine stop loss placement before position size. You risk per trade should stay the same. You find the best stop
loss placement to give the trade a good chance of working out (don’t put stops too close) and then you adjust your
position size to meet your 1R risk.

8. Is the risk reward there, realistically?

Is the risk reward there? Meaning, is there a logical profit target available relative to nearby key chart levels that allows
you to get a 2 to 1 winner or more? You need to make sure that your stop loss and profit target both make sense in the
context of the surrounding market structure.

9. Do I have a plan to exit this trade?

Do you have an exit plan for this trade? What is your overall plan to exit this trade for either a win or a loss? Are you
planning to exit at a certain horizontal level or are you planning to trail your stop and let the trade run because it’s in
a strong trend? Will you move to breakeven at a certain point or just set and forget? These details should be ironed-
out before entering the trade. If a dramatic turn of events happens whilst the trade is live (like a huge price action
reversal against your position, for example) you can intervene, but in most cases, you want to pre-determine your exit
strategy and stick to that no matter what.

10. Does it fit my trading plan?

Finally, if you’ve answered all the above questions successfully, then your answer to this last question should be “yes”.
Your trading plan can be a checklist like this, although yours will be more detailed, and only if a trade passes each
filter should you give it the “OK”. Don’t worry, eventually, the process of going through each filter will become a
habit and something you almost don’t even need to think about it. You will intuitively know if a trade passes all your
filters and criteria because you will have gone through your checklist / plan manually so many times that it will have
seared itself into your brain, it will become part of you.

Conclusion
We all need guidance in life, we all need mentors to improve and excel. I can be your trading mentor by
teaching you what I know and what I have learned via my trading courses and members community, but
it’s up to you to put in the ‘hard-work’ and follow-through with what you learn. Today’s lesson is another
piece of the trading puzzle; you need to actually make a checklist like this and put it to use in your day-to-
day trading and if you do, I guarantee you will see an improvement in your trading. You are going to
naturally be more selective and methodical regarding which trades you take and how you trade the market.

Make this trading checklist a part of your daily trading routine and you will wonder how you ever
traded without it.
I analyze my favorite markets, I will plot key chart levels, breakouts, or false breaks on my
charts with lines. I will also make more notes in my notepad at this time; here are some of the
things I will be looking for:

• Market condition: is the market trending or consolidating?

• Where are the key horizontal support and resistance levels on the daily and weekly charts?

• What is price action doing in relation to the key support or resistance levels?

• What are the daily 8 and 21 EMA’s doing? What is price doing in relation to the EMAs?

• Are there any obvious price action setups? If so, do they have confluence of multiple
supporting factors and agree with my trading plan?

• What is happening on the 4hr charts? Are there any obvious signals on the 4hr charts that agree
with the daily trend?