Forex trading can be a rewarding career path for anyone with enough knowledge and skills. You just need to sign up with a forex broker and learn to use trading platforms like MT4 or MT5 for trading in the live market, which are the two top platforms used by millions of traders around the world. Irrespective of the platform or broker you use, executing your trades with perfection is one key skill that you will have to develop to excel as a forex trader. However many forex traders fail at this task as they miss out on important things that need to be ticked off for implementing their trading plan without any mistakes.

But you can avoid it by educating yourself about the forex trading checklist by reading this write-up, which can help you improve your skills and trade execution.

Why do you need a Forex Trading Checklist?

Before diving into the forex trading checklist, you need to understand what it means and why you need to follow this checklist as a trader. You might get confused between the trading plan and trading checklist as many think that they are pretty much the same or similar. A trading plan is also referred to as a trading strategy, as it outlines the methodology or techniques that you will rely on for carrying out the trading process. However, a trading checklist is different from a trading plan and focuses more on the details that have to be covered for executing the trading plan without any errors.

A trading plan or strategy covers a lot of background information regarding the method of analysis, trading style, and timeframes to focus on for finding ideal trading opportunities. All of these need to be in line with your trading goals and risk tolerance. However, a trading checklist provides more insights into the strategy by making it more precise with points that need to be kept in mind while executing the trades in accordance with the plan.

Having a trading plan gives you a sense of direction for navigating the dynamic forex market while the checklist helps you to stay on the right track throughout the process so that you can trade safely without deviating from the trading plan. For instance, one item in your trading checklist can be the use of trading calculators as they are essential for getting accurate results for any trade-related calculations, saving your time and eliminating manual errors that could happen. Because even a minor error can lead to costly mistakes that you cannot afford to make as a forex trader.

Tips for making a perfect trading checklist

The first tip for making a complete and perfect trading checklist is to be purposeful. You need to learn about purposeful trading so that all your actions are backed by logic and whatever you do as a trader adds meaning to your journey ahead. This can be a bit too deep to understand as a beginner, but you will eventually figure it out once you take some time to assess your own skills and find the best ways to put them to use while exploring the forex market. Don’t expect yourself to get it right in the first attempt itself as trading can be a lot of trial and error in the initial phase.

You will often learn the most important lessons of trading after committing several mistakes. It is normal for things to go all wrong while you are still new and lack any experience. But in the end, you will have to fix the issues and come up with a checklist that can help you trade with ease and gain the edge that you need to make progress as a trader. It is important to remain patient and take things slowly during the learning process.

One tip that I can give you to trade safely in the beginner phase is to practise on a demo account first before anything else. Demo trading can teach you many things about the market and trade execution without exposing you to market risk. You will be using virtual funds, removing the risk and seeing realistic results that give you an idea about how your trades would have turned out in the actual market. You get to learn for free without spending a single penny and you will be able to apply this practical knowledge in live trading later on.

Demo trading accounts allow you to test your strategies and skills in real-time market conditions without risking real money. You will not be afraid of losing and this allows us to experiment with different techniques and trading styles before choosing the best one for optimum results. You will be able to see how trades get executed and how the market moves. This kind of risk-free exposure is essential to enhance your knowledge and this surely helps you in preparing the trading checklist without missing any details.

How does a Trading Checklist work?

1. Confirmation of the trade setup – The first thing to tick off in your trading checklist is that the trading opportunity that you have spotted has the potential to provide the ideal trade setup in a natural way. You need to check if it resonates with your trading goals and fully aligns with your trading style and strategy. You should also check if it will work well with your risk/reward ratio which tells you if the trade is worth the risk or not. Once the trade setup fits your requirements for potential gains and risk profile, this is the point at which you can start with the planning process for executing the trade.

But if it doesn’t fit your criteria for the ideal trade setup, you need to give up on the idea of this particular trade as forcing random trades for the sake of trading will never yield the desired results. You should also take the information given by different technical indicators or fundamental analysis, in order to avoid being caught up in sudden volatility that ruins your plan.

2. Confirming Entry and Exit points – The next thing in your trading checklist is crucial for the actual execution of trades as well as the outcome of this trade. You will be confirming the entry and exit points with the help of price charts and indicators. You can depend on key support and resistance levels or even advanced indicators like Fibonacci retracements for spotting the optimal entry and exit points for getting the best possible results with the trade. You should decide the preferred entry point at first which is the ideal price at which you would want to execute the order.

You need to be clear and precise about the optimal opening price for the trade. But sometimes you may not be able to open the trade at this price in the constantly fluctuating currency market. Hence, you should also decide on an alternative entry point as a backup plan. This way, you won’t have to forfeit the trading opportunity just because the first order didn’t get triggered as you always have a plan B in case the plan A doesn’t materialise. The same applies to exit points as you should place both take profit and stop loss orders to secure profits while also planning to cut down the potential losses.

3. Position sizing and actual execution – After confirming the trade setup along with various entry and exit points, you need to decide the trade size in lots which is also referred to as position size. Position sizing is a crucial component of risk management as the trade size affects your potential gains/losses along with the margin requirement while using leverage. You should only risk 1% or 2% of your account balance in a single trade as risking anything higher than that will result in bigger drawdowns.

Once you have ticked off all the relevant details and key metrics for the trade, you can proceed with the plan by placing the orders for executing the trade. Don’t forget to place multiple orders using stop and limit order options. You can also utilise trailing stop loss if you don’t want your stop loss to remain stagnant and prefer to manage the exits by moving it based on the direction in which the market has headed.

Summary

To summarise, having a perfect trading checklist is just as important as having a solid trading plan and risk management system. Because the trading plan and risk management will not be materialised without double-checking everything. You need to remain flexible and adaptable with a backup plan if the first plan does not work out due to any reason which is very much possible in the fast-moving forex market.

Intellectual Insider

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