Do you know that before you make any trades in the stock market, you have to go through a stock trading checklist? Yes! Before initiating any trade, one has to have a comprehensive checklist available, as this assists traders in maintaining discipline, being loyal to the trading strategy, and developing confidence.
It is important to keep in mind that getting off to a strong start is equivalent to winning half the war! Consequently, the maintenance of a trading checklist may assist traders by providing them with a list of questions to which they are required to provide responses prior to the execution of any deals.
But wait! It is essential that we should not confound a strategy with a checklist. The term “trading plan” refers to a more comprehensive strategy, which may include selecting the market you want to trade in as well as the analytical method you want to use. On the other hand, the checklist concentrates on each individual transaction in addition to the requirements that need to be satisfied before the trade order may be carried out.
Therefore, in today’s post of this blog, we will be addressing the following eight stages for developing a Stock Trading Checklist, all of which should be checked before any orders are executed:
If the market is now moving or trading in a trading range?
Traders who have experience should be aware that when a stock is in a strong trend, trading in the direction of the trend may lead to a better possibility of making profitable deals. There is a popular proverb that asserts following trends is like to having a best friend at your side. As the chart that follows demonstrates, it is possible to make a profit by trading in accordance with a continuous trend.
Traders need to ask themselves whether the prices of the stock are in a strong trend and if they want to trade together with the trend as part of their trading strategy. If the stock prices are in a strong trend, then traders should trade along with the trend.
In contrast, a stock is said to be in a range bound when its values oscillate between a support level and a resistance level while trading inside a channel, as demonstrated in the following paragraphs:
There are certain equities that have a tendency to move in ranges. When trading in range markets, one may find it helpful to use oscillating indicators like the relative strength index (RSI), the commodity channel index (CCI), and stochastics. When you make any kind of trade, you should check to see whether the stock’s prices are now in a trading phase or a ranging phase, and you should also check to see if trading in a range or a trending market is part of your trading strategy.
Are there any degrees of support or opposition in the area?
Before putting in any trading order for a specific stock, it is important to double check to see whether there is a level of support or resistance in the area. Price action often has a tendency to respect specific price levels for a variety of reasons, and it is essential to have the ability to discern these levels. Traders do not want to take a long position when there is a major level of resistance close since there is a higher chance that the price will rebound back down.
The same thing happens when the price hits a significant level of support, and then it bounces back up thereafter. Traders that focus on trends should keep an eye out for any levels that are broken, since this is a sign that the market may begin to trend. Range traders, on the other hand, anticipate that prices will move sideways between a support level and a resistance level for an extended length of time.
Is there a correlation between the price activity and the indicators?
Traders have to take notice of the fact that the indicators assist traders in confirming transactions with a high likelihood. Traders should have between two and three indicators that supplement their trading method, and the number of indicators they use should be determined by both their trading plan and their approach. Adding many indications to a single chart might make analysis more difficult than it has to be, thus one should avoid doing so. They need to make sure that their analysis is clear, uncluttered, and easy to understand at a glance.
Additionally, one must avoid using more than two indications from the same group. Indicators of volatility, such as Bollinger bands, together with momentum indicators, such as the Relative Strength Indicator, are, for instance, the most effective combination to utilise while trading. Before putting in any trader order, it is important to determine whether or not these technical indications validate the trading signal.
What is the proportion of my risks to my potential rewards?
The risk to reward ratio is the proportion of the number of points, or pips, that traders are ready to lose in order to achieve the desired level of profit. Traders need to have a favourable risk-reward ratio, such as a 1:2 ratio, which indicates that a trader should risk half of what he stands to earn if the transaction is successful. Before carrying out any trading order, traders need to first analyse the proportion of their potential losses to potential gains.
How much of my own money am I putting at risk?
Before putting in an order, one have to first consider how much of their total wealth they are ready to put at risk on a single transaction. When a trader is overconfident in a single investment, there are instances when they will employ all of their available cash in a single transaction and also begin leveraging their account to its greatest potential.
You may prevent this situation by reducing the amount of your money that you invest in a single deal. In addition, one has the ability to place stops on all transactions, which ensures that the total amount at risk does not exceed 5 percent of the account’s available funds.
Are there any important economic announcements that are expected to have an effect on the market?
Before beginning to trade in a certain stock, one must first determine whether or not there are any upcoming economic releases that have the potential to influence the price movement of that stock. The publication of economic data such as GDP, CPI, PMI, and automobile sales figures may have a significant impact on the price of a company or an index. Therefore, it is imperative that we maintain a careful eye on the economic data that is likely to be revealed in the near future.
In the event that the market moves in the other direction, what kind of exit strategy should I use?
We cannot always be successful in our profession, and there is no guarantee that we will make a profit. As a result, we need to ensure that we always have a contingency plan in place in case the prices do not meet our expectations. For this reason, if we start a position of any kind, we need always be sure to place a stop order first so that we don’t end up suffering an excessive amount of losses. Prices for stop-loss orders may be established in a variety of ways, including by utilising levels of support or resistance, Fibonacci levels, the low of preceding candlesticks, and other similar methods. In addition to this, you can check out the post on our site titled “How to Place Stop Loss in Trading?” In order to have a knowledge of how the price for stop-loss orders is determined.
Am I sticking to the trade strategy I created?
Before setting any trading order, one should first question themselves whether this order is consistent with their trading strategy. This is not the least important step. Deviating from one’s trading strategy is not a good idea since it will result in unpredictable outcomes and will make the trading process more difficult. Bear in mind that you should not enter any transactions until the trading checklist has been finished, and you should also check to see whether the trade can be carried out before entering any trades.
Bottomline
The aforementioned are some of the guidelines that, in our opinion, need to be followed before engaging in any kind of business transaction. However, the mere possession of a checklist is not sufficient to guarantee that every single transaction will result in a profit.
Traders will find that it assists them in sticking to the trading strategy, maintaining consistency in their trading, and avoiding deals that are impulsive or irresponsible. We really hope that you found this blog to be educational, and that you will put the knowledge you learned here to good use in the real world.
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