Trading checklist: essential steps for traders

What is a trading checklist?

A trading checklist is a personalised list of factors you’d review before, during and after trades. It could help you to maintain discipline and consistency in your trading approach. Its primary purpose is to reduce emotional decision-making and help prevent common mistakes.

A well-structured trading checklist is typically divided into three key stages: pre-trade, during trade and post-trade.

• Before entering a trade, you’d start by thoroughly evaluating factors such as market conditions, trends and any relevant news or events that could impact price movements. Additionally, you could calculate the risk-reward ratio to determine whether the potential reward might justify the risk involved

• While your trade is open, stick to your risk management strategy. Adjust stop-loss orders as needed and maintain a clear exit strategy based on predetermined targets or any significant changes in the market. By following these and other rules consistently, you could avoid emotional decision-making

• After closing your trade, document your decisions and actions in a trading diary. Analyse the trade's outcome, focusing on key metrics such as gain vs loss ratios, profitability and any lessons learned. This post-trade review could help you track your performance over the longer term

Why you should use a trading checklist

• It encourages emotional discipline

  A trading checklist could help remove emotional biases, encouraging you to make decisions based on clear, predetermined criteria rather than impulse. It acts as a psychological barrier between your impulses and your actions, possibly preventing decisions driven by fear or greed.

• It promotes consistency

  By following a standardised approach, you create a repeatable process that could lead to more consistent trading outcomes. A checklist enables you to better track and analyse your results over time, making it easier to identify strategies that work and those that need adjustment.

• It helps strengthen risk management

  Checklists prompt you to assess potential risks and set clear parameters before entering any trade. By consistently using risk management tools like take-profit and stop-loss orders to limit total risk, you can maintain a disciplined approach to protecting your capital.

Essential steps before placing a trade

Before placing a trade, create a clear trading plan by following these steps:

1. Define your motivation

   Think about why you want to trade. Are you aiming for primary income, extra income or long-term wealth growth? Knowing what you want to achieve will help you set appropriate goals and stick to them, even in difficult market conditions.

2. Decide how much time you can commit

   
   Different trading styles require different time commitments. Day trading demands constant attention, while swing trading requires several hours a day for analysis. Position trading involves less frequent but more detailed analysis. Look closely at your schedule – work, family and other commitments – to figure out how much time you can realistically dedicate to trading.

3. Define your goals

   
   Set clear, measurable and achievable goals. You could even use the SMART framework: specific, measurable, achievable, relevant and time-bound. For example, ‘I want to increase the value of my entire portfolio by 15% in the next 12 months’. This goal is SMART because the figures provided are specific, your portfolio’s performance can be tracked and checked, it could be attainable (provided your market assumptions are correct), it aligns with your motivations for trading and there’s a time frame attached to it.

4. Decide how much capital you have for trading

   
   Only use money you can afford to lose and keep your emergency savings separate. Check the minimum capital requirements for your chosen market and don’t forget to factor in trading costs such as commissions, overnight funding fees and guaranteed stop premiums. It could also be useful to set aside extra funds for opportunities that may arise during periods of heightened volatility, enabling you to take part in the action. Remember, though, that higher volatility means higher risk.

5. Assess your market knowledge and decide how you want to trade

   
   Take a look at how well you understand the markets you want to trade in. Do you know how to analyse the technical and fundamental aspects of those markets? Learn about market regulations and trading hours to build a solid foundation for your trading decisions.

Ensure you're comfortable with your trading platform and the products available on it. Choose which product(s) you’d like to use to access the markets. With us, you’ll be able to trade using various derivative products, namely spread bets, contracts for difference (CFDs) and US options and futures. Make sure your choice aligns with your trading strategy, goals and risk tolerance.

Risk management strategies for traders

Decide on limits for position sizes

It's important to decide how much of your capital you're willing to risk on each trade and position size plays a key role in this decision. Some traders prefer to risk no more than 1-2% of their total capital per trade. By managing your position size and keeping your risk relatively low, you could limit potential losses while still giving yourself the opportunity to make profits when trades go well.

Use stop-loss orders to limit losses

A stop-loss order could help to protect you from bigger losses by automatically closing your position if the market drops to a level you've set. By choosing a stop-loss level that fits your risk tolerance, you can limit potential losses when the market moves against you. For extra protection, a guaranteed stop-loss order ensures your position is closed at the exact price you've chosen, even in fast or volatile market conditions, preventing slippage. Keep in mind, though, that guaranteed stops incur a small premium if triggered.

Set price alerts to stay informed

Price alerts are a simple way to keep track of the market without having to watch it all the time. You can set alerts to notify you when an asset reaches a certain price, enabling you to act at the right moment – whether it's to lock in profits or limit potential losses.

Set a clear risk-reward ratio

The risk-reward ratio helps you weigh the potential profits against the potential losses. For example, a 1:2 ratio means you're willing to risk £1 to make £2. Setting this ratio in advance could be helpful in ensuring that the gains from successful trades will make up for your losses in the long run.

Spread your risk by diversifying

Diversification involves spreading your trades across different assets, markets or sectors. By allocating your capital to more than one option or opportunity, you can reduce the impact of a single loss on your overall portfolio, helping to protect your capital in the long run.

Technical analysis checklist for trading

Technical analysis enables traders to make more informed decisions by systematically examining market data and price movements. Below are some key techniques to consider when including this type of analysis in your decision-making.

Analyse trends

Use multiple time frames to analyse market trends. This could help you determine whether the market is trending upwards or downwards. By analysing trends across different time horizons, you’ll gain a clearer idea of potential future price movements.

Understand support and resistance levels

Identify key support and resistance levels – price points where the market is likely to reverse or face obstacles. Understanding these levels is essential for creating trade entry and exit strategies, as they reveal potential price reversals or breakouts.

Use multiple indicators

Apply multiple technical indicators like moving averages or the relative strength index (RSI) to assess whether an asset is overbought or oversold. Using a combination of indicators strengthens your analysis and reduces the risk of false signals, which could give you more confidence in your decisions.

Learn to recognise chart patterns

Chart patterns like the head and shoulders, double tops and triangle chart patterns provide an indication of how markets might move. Learning to identify and interpret these patterns could give you a significant edge in predicting future price action and making more informed trading decisions.

Assess market volatility

Evaluate current market volatility and adjust your trading strategy if necessary. In more volatile markets, you might need tighter stop-losses or smaller position sizes. Understanding volatility helps you manage risk and adapt your approach to changing market conditions.

Fundamental factors to consider before trading

Review the economic calendar

Take a look at our economic calendar to stay ahead of key events that could impact the markets you're trading. Major economic announcements like unemployment rates, inflation data and central bank decisions can have a significant effect on price movements. By tracking these events, you can better anticipate potential market volatility and make more informed trading decisions.

Monitor geopolitical events

Stay aware of ongoing geopolitical situations that might influence market sentiment and price action. Events like international conflicts, trade negotiations, elections and policy changes can create ripple effects across global markets. Understanding the potential implications of these events can help you develop more strategic and risk-aware trading approaches.

Track corporate announcements

If you’re trading stocks, keep an eye on earnings reports, dividend announcements and other corporate events that could impact share prices.

Analyse sector performance

Assess the broader performance of the sector or industry related to your chosen instrument. Look for emerging trends, technological disruptions, regulatory changes and competitive dynamics that could influence the price movements of individual stocks as well as the future performance of the wider sector/industry.

Examine global market correlations

Consider how different markets and asset classes are interconnected, for example how currency fluctuations can influence commodity prices or how trends in emerging markets may affect developed market assets. Being aware of these correlations can help you develop more effective trading strategies.

Review and journal your trading performance

Document your trades

Keep a detailed diary of every trade you make. Record important details such as position entry and exit points, the reasoning behind each of your decisions and how you felt during trades. Consider using digital tools or templates for your trading plan that enable you to track various aspects of each trade.

Analyse your performance

Make it a habit to regularly review your trading performance. Look for patterns that highlight your strengths and weaknesses and identify areas of your strategy that could be improved. Use metrics like the risk-reward ratio to measure how effective your trades have been and pinpoint areas that need refinement.

Review your emotions

Take time to assess your emotional responses while trading. A psychological review involves reflecting on how your emotions, such as fear, greed or frustration, influence your trading behaviour. By understanding these psychological patterns, you can work on developing better discipline and making more consistent, objective trading choices. Develop self-awareness techniques such as journaling to help you recognise emotional triggers that might lead to impulsive or irrational trading decisions.

Refine your strategy

Consistently work on refining your trading strategy. Consider using a demo account, which lets you experience a simulated market environment without the risk of losing real money. This enables you to familiarise yourself with how different products and markets behave. Our demo account is a great way to explore the financial markets available and fine-tune your approach. It enables you to practise with virtual funds while accessing the same tools, indicators and features as those available with a live account.

Commit to continuous learning

Invest time in ongoing education, studying market dynamics and staying up to date with new trading techniques and products. Participate in professional trading communities, attend webinars, read industry publications and consider advanced courses to broaden your knowledge. We offer a range of resources to help you sharpen your trading skills through IG Academy.

Trading checklist questions

Before entering a trade, here are some questions you might want to ask yourself:

1. Is the market in a trend or moving within a range?

2. Are there key support or resistance levels near the entry point you’re considering?

3. Are there several different indicators that appear to support the trade?

4. What is the risk-reward ratio for this trade?

5. How much of my capital am I putting at risk?

6. Are there any major economic releases that could affect the trade?

7. Have I considered the overall market sentiment or news that could influence price movement?

8. Am I adhering strictly to my trading plan?

Note: this list of questions doesn’t cover all possibilities and additional factors may need to be considered depending on your individual strategy and market conditions.

¹ Based on revenue excluding FX (published financial statements, October 2023).
² Best platform for the active trader, best multi-platform provider and best finance app as awarded at the 2024 ADVFN International Financial Awards.