How To Develop A Trading Checklist

Having a checklist to follow before every trade is a great technique, especially if you are a novice trader. It will help you prevent rushed decisions. If you notice that your trading is highly influenced by emotions, this approach should greatly improve your strategy.



Checklists are an important part of almost every profession and help to keep things done well and in order. Following a checklist and maintaining a strict order is practically a guarantee of an organized workload. By putting tasks and organizing them on paper we also organize our mind and keep track of the progress.


And as we know trading is a business, it can and should be applied in trading as well: there are many benefits to checklists and probably the most obvious one is their simplicity. There is nothing easier than just sticking to a plan that is already written in front of you.


Use the following helpful tips to make your own personalised checklist to go by when opening new deals.Many of us believe we're in control of our emotions when we trade, but sometimes we run into weaknesses. Maybe we become too attached to a stock, or get out of it too soon when it doesn't perform as expected. Let's explore some ideas that can help, including keeping a trading checklist to help prevent emotions from getting the best of us, and applying trading rules that can override the temptations we might otherwise be unable to ignore.


Consider keeping the following trading checklist somewhere handy as you trade and invest. It can help remind your rational self to stay in control of the situation.


Set Trading Rules


Consider establishing some trading rules that can help you snap out of it when emotion comes into play. Of course, different rules apply to different investors depending on their trading strategies and goals, but some general ones can be applied in many situations. Here are some rules you might want to put on your trading checklist:


  • Set up stop losses.

  • Set stringent risk management rules for how much you trade on a daily or weekly basis.

  • Establish strategy rules before putting a trading plan into motion.

  • Try to anticipate several possible moves when entering a trade so you can be prepared to respond without hesitation or doubt.


Get Into a Routine


Many investors and traders set trading standards but abandon them—sometimes mid-trade—because of fear, greed, over-excitement, and so on. Or, they change rules between trades.


Consider setting a routine that you can stick with. It might not be easy to establish, and it takes discipline. Don't get discouraged if it takes time to find a trading routine you're comfortable using. Once you have a routine and your rules in place, however, you might find yourself:


  • Better equipped to deal with the ups and downs of markets.

  • Able to build "bridges" over everything from small potholes (such as that hot stock pick your mate gives you) to a major crater like a recession.

  • Able to avoid getting off track when things don't go perfectly.


EMOTIONS GETTING THE BEST OF YOU? FIX YOUR BRAIN. Try establishing rules, routines, and other helpful strategies to keep your head in the trading game. 



Don't Obsess About Intraday Market Moves


If you trade on a “daily” timescale where potential buy and sell pricing signals come just once a day, yet you check your trades or charts throughout the day, you’re inviting emotion. After all, your signals (your rules) stipulate that you can only take one action a day, perhaps at day’s end. So checking more often can be a strong sign that you’re too emotionally connected to your trade. It works the other way, too. Are you avoiding your routine, and why? Have losses or unfriendly market conditions made you a bit despondent? Here are some ideas to consider:


  • If you’re feeling antsy, go for a walk.

  • If you need longer or more frequent breaks, change up your routine. For instance, schedule your daily workout in the middle of the day to break up your trade-checking obsession.

  • Consider a one-week challenge and go on an information “diet” that avoids market “entertainment” on TV or elsewhere. Just set a firm date for coming back on board, then stick to it. You don’t want to risk missing out on information that could lead to trading opportunities.

Recognize When Your Personal Life Intrudes


Consider this baseball expression: "He took his batting problem to the field." It means a player sometimes starts making errors in the field because he's been striking out at the plate. The player is letting emotions involved with one aspect of life start to affect him in a completely different area. Traders and investors sometimes fall into this trap, as well, especially when problems from their personal lives start affecting their trading.


Unusually high trading emotions can even be a canary in the mine for personal troubles. Self-evaluate and ask yourself if you have larger life stressors than you realized. Have you experienced change, or a death, in your family or social circle? Moved your residence, lost a job, had a physical injury? Here are some trading strategies to consider:


  • Take a break from trading, or consider practicing by paper trading for a while.

  • Consider reducing your position size, and/or number of positions, while you seek remedies.

  • Simply allow time to pass while your personal issues cool down.

Take Responsibility and Be Ready to Adapt


Individual investors sometimes feel outdone by the scope and speed of an increasingly automated trading world. A missed trade, or an ineffective stop-loss, was wiped out by the big boys, the complaint goes.


But the error often lies with the individual. The trade is too high-risk for the trader’s predetermined risk tolerance. Yet, instead of discarding the trade in search of a new one, he or she trades emotionally, believing the trade will make money with a tighter stop. The reality is that by keeping a tighter stop than the stock price action indicates, the trade risk goes up. Normal price action will wipe out that stop-loss quickly—too quickly. The trader’s normal emotional reaction is to gripe that stop losses don’t work. But it wasn’t the big guys behind that move; it’s likely that a herd of individual investors all set tight stops.


Now's the time to recognize your mistake and work on avoiding it in the future. Here are some potential stock trading rules:


  • Consider avoiding common and popular percentage stop losses.

  • Plan ahead and consider stop-losses based on solid support levels for a stock.


Remember That Your Trades Don't Define You


One common emotional trap is believing that trading defines you as a person. Sure, most of us hold money in high regard. There’s nothing wrong with that. Money supplies our basic needs, but it also feeds our bigger appetites. To many, money means freedom. By that reasoning, it’s no wonder emotion is automatically attached to trading. When you're over-identifying with trading, remind yourself why you trade.


  • Trade because you love the routine (and what’s often, really, a grind).

  • Trade because you love identifying puzzles and solving them.

  • Embrace mistakes and victories equally.

  • Separate emotion from money (not easy to do).

  • Don't sweat the small stuff.


Sometimes all your trading brain needs is a few fixes—in the form of a checklist and some rules. 


Dominik Stone


Dominik Stone

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