Q. ”Timon, I feel like you have to be your own therapist when trading. My issue isn’t executing a trade, but rather knowing if I should take the trade or not? Do you have some tips or guidelines that you use before you take a trade? I need this to be easier for me.”
A. I love that analogy.
You have to be your own therapist with trading!
It’s true though…
Trading is an emotional game. You need to be able to control and conquer your mindset whether you make a loss or a gain.
As with the second part, I have one better than just tips or guidelines.
I have a set of questions that I like to ask before I take a trade.
Ask and answer these questions, and you’ll be well on your way to not only executing the trade, but also feeling confident once you’re in it.
Here are my essential questions you can use each time.
Q 1. Is a trade in sight?
First, you have to identify and confirm whether there is a trade.
Maybe you’re using breakout patterns, price action, Smart Money Concepts or
price action techniques.
Whatever it is, you have to first pinpoint a trade.
Q 2. Has my trading strategy aligned?
Every successful trader has a well-defined strategy.
Once you have spotted a trade, then this is where you can plot the annotations (drawings on the chart).
This could be rooted in technical analysis (Like I use with my chart patterns strategy with Red Hot Storm Trader), fundamental analysis, or a blend of both (Like Trader X uses with his Pickpocket Trader).
Your strategy will provide the roadmap to guide your trading levels.
Q 3. Have I set my trading levels?
Ok, so you see a potential trade and you’ve drawn up the system on the chart.
Now you need to determine your entry, exit, and stop-loss points.
These levels are very important components of your trading strategy.
And it will give you a more mechanical approach to trading, instead of making a decision based on your gut.
Q 4. Have I calculated my trade size (volume)?
Effective money management is paramount.
You need to know in advance how much of your capital you are willing to risk per trade.
And this is based on the size of your current portfolio.
A common guideline is to risk no more than 1-2% of your trading capital.
Q 5. Am I ready to execute?
Before you pull the trigger, you need to double check everything.
Make sure you are going long (buy) or short (sell).
Make sure you have your risk to reward in place.
Make sure you know what your entry, stop loss and take profits levels are.
Make sure you know how much money you can win or lose if the market hits either level.
If you’ve checked everything – Hit that button and,
Take the trade.
Ok so we have covered the 5 most important questions, to answer before you take a trade.
But I have four more questions which should be the foundation on which you build your trading strategy….
Q 6. Do I understand the financial markets?
Whether you’re trading stocks, commodities, indices or cryptocurrencies – you
need a general understanding of the asset and the factors influencing price movements.
You also need to understand the inner workings of the financial instruments you trade (CFDs, stocks, Spread Betting etc…).
The more knowledge you gain, the better and more confident you’ll feel in the trading field.
Q 7. Do I understand technical analysis?
Trading requires you to trade short term movements based on a chart.
You’ll need a decent understanding of charts, indicators, patterns, volume, and Smart Money Concepts.
Q 8. Am I letting emotions take over?
I believe there are THREE emotional players that can ruin you as a trader.
Fear, Greed and Ego.
If you follow a mechanical strategy with strict money management principles, you will not be swayed by emotions…
Q 9. Am I prepared to take a loss?
Even with extensive analysis, trades can go south.
So, are you financially and emotionally prepared for this possibility?
These questions serve as the foundation for a clear strategy, ensure you have an understanding of the market, and emotional control
Right, let’s sum up the questions you need to ASK and ANSWER before you take your next trade…
Q 1. Is a trade in sight?
Q 2. Has my trading strategy aligned?
Q 3. Have I set my trading levels?
Q 4. Have I calculated my trade size (volume)?
Q 5. Am I ready to execute?
Q 6. Do I understand the financial markets?
PS. If you’d like to experience the thrill of short term trading, then consider joining my Red Hot Trader service. I’m happy for you to test run it for 90 days. If you find it’s not for you, I’ll give you your subscription fee back, no questions asked.