Think Trading Checklists are Boring? Think Again . . .

Do you use a checklist when you plan your trades?”

When we use a checklist as a guide to our trades, the advantages are numerous: we can’t forget to do something; we do the necessary pre-operation steps in the right order; the discipline of the checklist frees us mentally to focus on the specifics of the operation itself. In the stressed, hectic environment of a volatile market, the checklist forces us to focus, to act in a disciplined, methodical way; and it gives us a solid, reliable plan. If the trade we are planning does not meet the criteria in our checklist, we may want to postpone that trade for now, or re-think it.

Our goal with a checklist:  To make better decisions that ultimately lead to improved profits.

The process of creating a checklist is can be straightforward. You take your thought process for how you get into one of your best or ideal trades and describe it on paper. What do you look first, what do you look for second? In your best risk/reward setups, what do you look for? What are the essential criteria? What other factors are desirable but not essential? Finally, where will you exit—where is your stop loss and profit target?

Having a checklist makes it easier to make disciplined decisions in the heat of battle. But there is another benefit that matters in the long run: we shift the entire frame of what we are doing.

Without checklists, we try to put on trades that will make instant money. We look at the markets and cast around for whatever “hot stock” is moving now. Maybe we are even prepared, but if we neglect our checklist, we can overlook things or make mistakes.  The checklist gives us a more disciplined way to make decisions. The challenge is to follow the checklist on a consistent basis.

As you grow into this focus on executing your plan, focus on sticking to your rules and stay disciplined. You may find that the emotional attachment to money fades and immediate material gratification becomes less important.

And as the emotions fade away, your trading actually gets less stressful.  Your profits rise, because you are trading from a more rational, disciplined and calm state. This in turn only encourages you to stick to your checklist and your rules. It becomes a cycle of more discipline, less emotions and higher trading profits.