I’m sure you know by now that mistakes kill trading systems.
Whether it’s death by a thousand papercuts, or by sitting on a big barrel of dynamite (to paraphrase Nicolas Taleb), it’s typically a trader’s mistakes that are their undoing.
One sure way to eliminate mistakes and improve your trading efficiency is to establish processes that counteract your trading foibles.
By implementing a pre-trade checklist, you can kill off your smaller mistakes for good, as well as promote peak performance consistently in a much wider sense.
I know, because it has worked for me.
By monitoring my psychology, and recording how I view my trades before I enter, I’ve built a database I can use to isolate what works and what doesn’t.
Would it surprise you to learn that my losing trades have occurred mostly when my mental state was not quite right, or when I lacked fundamental conviction in my idea?
My biggest winners tend to occur when it fits my “market model”, I have strong macro conviction and the trade is in alignment with my beliefs.
This recording process means I can ask (and answer) the hard questions. Was I over-optimistic or impatient in my entry? Maybe I missed a crucial part of the technical or fundamental picture I should have seen?
This self-knowledge is invaluable, and is hard to capture (let alone learn from) without having the proper process in place.
To make setting up a pre-trade checklist easy for you, here is my template.
It’s quick, easy, and has significant benefits when it comes to taking full responsibility for your trading methods (and outcomes!).
Don’t be afraid to make changes as you see fit. The more you own it, the better it will work for you.
About the Author
Sam Eder is a currency trader and author of the Definitive Guide to Developing a Winning Forex Trading System and the Advanced Forex Course for Smart Traders (get free access). He is the owner of www.fxrenew.com a provider of Forex signals from ex-bank and hedge fund traders (get a free trial). If you like Sam’s writing you can subscribe to his newsletter.