Planning a trade before you click

A trade plan answers every important question before you click. If you cannot answer one, you do not have a trade yet.

The five questions

1. Why here? What about this setup fits my written plan?
2. Where do I enter? At the market, or at a specific level?
3. Where am I wrong? This is your stop. Place it where the idea no longer holds, not at the amount you would like to lose.
4. Where do I take profit? It must be at least three times your risk, after the spread.
5. How much? Calculate this from your risk and your stop.

News check

Look at the calendar. If a major US release is due while the trade is open, decide in advance what you will do. Many beginners choose to stay out until it has passed.

The hard stop

Place your stop on the platform at the same time as the trade. A stop in your head is a hope. Moving a stop further away because a trade is going against you is one of the fastest ways to turn a small loss into a large one.

Stops are not perfect. In a fast market, your exit can be worse than your stop price. This is called slippage, and it is one more reason to keep your size small.

Key point

Plan the trade while you are calm, then trade the plan. Decisions you make mid-trade are the ones most driven by emotion.