Avoid 90% of Losses: Why Having a Trading Strategy and Trading Checklist Is So Important

Did you know that according to statistics of major retail brokers, 80% of traders lose money?

10% maintain their  balance, but earn nothing. And only 10% make money. And it’s not always six-figure income, but they do earn.

What do these traders who make a profit have in common? Maybe they are just born lucky?

Not exactly. They all learned to create their own luck. Do you want to learn how to do it? Then let’s sit down and set up a trading strategy.

 

Why do you need a trading strategy?

A trading strategy is a set of rules and recommendations:

  • Which assets you trade
  • Under what conditions
  • Where and when you enter and exit the market
  • How long you should hold the position

When creating a strategy, avoid stating common sense things like “I’ll buy only in a rising market” or “I need to buy pullbacks”. You need specifics: what, where, when.

Let’s take an example:

 

What your trading strategy should look like: creating a trading checklist

A checklist is a list of tasks that need to be done.

You can create your checklist on the phone, in a Word/Excel document, or you can use a good old notebook, it’s up to you.

Alternatively, you can do it in Google spreadsheets:

Simple? Yes. Effective? Let’s see.

 

Strategy in practice

Say, we’re trading AUD/USD on a 4-hour time frame.

  1. We observe an upward trend
  2. Looks like the price is close to the support area
  3. We see the «outside bar» – our desired candlestick pattern – forming on the chart

Should we enter a trade? Hold on. What does our strategy tell us?

Are you starting to understand why 80% of traders can’t earn? They trade at one-third of their efficiency at best.

Our checklist clearly tells us: you shouldn’t open a trade. This situation requires a more detailed analysis.

Let’s get back to our chart and finish the job:

 

Attempt #2

Now it looks like a more serious and profound analysis, don’t you agree? So, what has changed:

  1. We have highlighted highs/lows which confirm the uptrend
  2. We didn’t spot any local sideways movements. So, we can place a trade

We also plotted a resistance area which has become support, we marked the round level and made sure that the candlestick pattern is exactly where it should be:

See the difference? A strategy won’t lie.

Now, it’s time to create a trading strategy from scratch. That’s the reason why you’re here, reading this article, right?

Well, open a Google spreadsheet, Excel, or grab a notebook. We’re getting started.

Ideally, you should know at least approximately what you’re trading and how. If it seems too complicated for you at the moment, just open a real-time trading chart and write down your trade entry criteria.

 

Phrase your thoughts correctly

Some experienced traders suggest formulating your thoughts this way:

“I won’t trade against the trend.”

Writing like this makes sense, but we advise you to put it a little differently:

  • “Reversal in the direction of the trend”, or
  • “Entry during a strong trending market”

Why using such wording? Although it sounds like an accomplished fact, the very wording forces us to make sure that this statement is correct.

“I won’t trade against the trend” is an affirmation that doesn’t need to be checked or refuted.

“Entry during a strong trending market”- the question immediately arises: is this statement correct, yes or no? If yes – we tick a box on the checklist, if no – we leave the question open.

 

What to do when a trade is not a 100% fit

A trading strategy is a set of recommendations. It should be flexible, so we don’t advise you to add any strict, rigid rules to it.

Why? When the trade with a 91% probability of success comes up, you start to doubt:

  • “What if it doesn’t work?”
  • “And if I lose again?”

If you get such thoughts, don’t enter the market at all. It is better to add a couple of affirmations to your checklist, for example:

  • “I accept that the trade may be unprofitable. Losses are part of a trading process”
  • “I have checked everything on the checklist. I can open a trade, relax and forget about it until it needs to be closed. “

Convenient, right? You’ve studied the chart, checked each box according to your trading strategy, set your mind to get the right trading attitude, placed a trade and forgot about it. Great job!

 

Still got questions?

Ask us on social media. For example, under the post with our fresh analytics with Tim Deev.

Chance favors the prepared mind. Take your rightful place in the top 10% of successful traders and don’t give it away.

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