What is a Trading Checklist?
A trading checklist is a list of things that need to be completed before you open a trading position, and while you’re in a trade. It helps you maintain consistency in your decision making, and avoid common mistakes you make.
Why You Should Use a Checklist
Using a checklist can make sure you’re not missing anything when taking a trade or during the trade management.
Think of it like how a pilot uses a pre-flight checklist before take-off. Even though pilots are highly trained and experienced, they still go through a checklist before every flight to ensure nothing is overlooked, no matter how familiar they are with the process. This prevents potentially dangerous mistakes and makes sure everything is running smoothly.
Similarly, in trading, a checklist serves the same purpose: it prevents you from forgetting important steps, even when you're confident. It adds an extra layer of assurance and prevents emotional decisions, which can creep in during times of stress or excitement.
A good checklist helps you to slow down, double-check, and confirm that you're not missing anything important. Whether it's reviewing your risk management, or simply confirming that your entry criteria have all been met.
What to Include in a Checklist
A trading checklist is not a one-size-fits-all tool. Depending on the type of trading you do, your checklist will need to be tailored to you. A checklist for a forex trader might look very different from one used by a stock trader or someone trading options.
More importantly, your checklist should focus on areas that you tend to overlook or rush through. For example, if you’ve found yourself consistently entering trades before economic releases, you should add a step to check and avoid them.
If a certain check becomes second nature over time, you may no longer need it. On the other hand, you might add new steps if there are things you’re missing.
A checklist isn’t your whole system or rule set. It's simply a list of reminders to check certain things depending on the situation, which could alter the trade approach and strategy used. If you try to include your whole system, it may take forever to get through! However, you don’t want to miss important details of your trade.
You may choose to break your checklist down into certain categories based on your process such as:
- Market selection
- Analysis
- Trade Entry
- Trade Management
Start your checklist by including the common things you miss, and expand from there to include the important parts of your process. However, for more optimal ways to use checklists, read our article about When (and When Not) to Use a Checklist in Trading.