There are many things top traders do better than the majority of traders who lose money.
For instance, they do a significantly better job at their trade selection, risk management, position sizing, and are far more patient and disciplined.
At the end of the day, if you want to maximize your potential then you need to cut out all the bad stuff you’re doing, whether that’s overtrading, overly aggressive, lack of discipline…or whatever…
It must be eliminated.
And you have to make it a priority.
You don’t want to be one of those traders who has a great win but then constantly coughs up those gains because they make dumb trades.
So how do you avoid making those costly mistakes?
It all starts with this….
How To Avoid Getting Into Bad Trades
Now, It might sound like I’m preaching here but believe me…
I am speaking to myself right now. I haven’t been trading great the last few weeks so this is something I need to hear too.
The best way to avoid bad trades is to not trade them entirely.
Sounds simple right?
In theory sure…but trading is very mental.
Sometimes our emotions drive us to make poor decisions.
That’s why you need tools to help you to stay on the right track.
A Simple But Powerful Tool: Pre-Trade Checklist
If you’re constantly finding yourself in bad trades then you’re clearing doing something wrong.
There’s no pretty way of saying it.
One way you can begin to correct the problem is by having a pre-trade checklist.
A simple set of questions you must answer before you place the trade.
Here are a few examples of questions for a pre-trade checklist:
- Is This One of My A+ Setups?
One way we get ourselves in trouble is by style drifting or taking trades that are new or unprofitable. A good way to break that habit is to ask yourself if the trade is an A+ setup.
- Do I Have An Exit Strategy (Profit and Loss Targets)?
Sometimes traders will jump into something because they hear a rumor or see a breaking news story…but they have no idea what they’re doing when they’re in. Try to have a target on where you want to take profits and cut losses. If you don’t do this then you’re likely to get super emotional and take a bunch of losses.
- Is There A Reason To Be In This Trade?
There are several reasons one might want to be in a trade. It could be technical, like you like the price level it’s trading at, or it could be catalyst-driven, like press-release. You should have a good reason for why you want to risk your hard earned money.
- How Is The Overall Market, Is This Trade Going With Or Against The Trend?
Sometimes you can come across a beautiful long setup…but the overall market can be puking…
You want to be aware of the overall market sentiment. I’ve discovered that taking fast profits and cutting losses quickly works best in this choppy market.
- Does This Trade Fit A Trend Currently Working In The Market?
Lately I’ve been focused on AI-related stocks because that’s where the action has been.
Trading stocks that have hot themes offer great opportunities because they tend to experience above average volatility.
On the other hand, if you’re trading something that doesn’t have a catalyst then it might be harder to trade because it will be less volatile.
Themes come and go. You want to be early and not late.
Final Note
Your pre-trade checklist doesn’t have to be elaborate.
It’s there to help you stay on course.
The above questions are just suggestions. I would love to hear what yours are in the comments section below.
If you’d like to learn more about my mentoring program then follow this link.
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