Like a captain who flies a Boeing 777 for a living, we trade Forex for a living too. Most of the things we do when trading to make money is the same things that pilots do just before takeoff.
Before a captain can get his aircraft up in the skies, he always goes through a checklist of items to avoid problems later on when the flight has taken off.
Similarly, we have a Forex trading checklist that we must go through before we can enter a live trade.
Now, how many times do you open your charts and start looking for trading signals while disregarding the existence of a checklist?
Unfortunately, most traders who are not successful with Forex trading are making this mistake.
You see, a checklist or a trading plan acts as a filter so that you can only enter trades when your pre-determined criteria has been met.
Without a trading plan, we will not stay on track. Depending on what level of a trader you are, you may either print this checklist on a piece of paper or use a mental trading plan.
However, I strongly encourage beginners to use a hard copy of their checklist because some of the things which we look at can easily be forgotten if entering trades using a mental checklist.
Only until you have formed a habit of visualizing and going through the checklist in your head that you will be allowed to use a mental version of your hard copy.
If trading Forex for a living or are intending to do so, here is a solid foundation upon which your checklist should be made of.
Trading Forex for a living: what must be contained in your checklist
Trends and key levels on a chart
We start by zooming into the weekly time frame to see if there are any obvious support and resistance zones.
The weekly time frame will give us a clue as to whether there is a long term trend or if the market is choppy.
The market can either be trending upwards, downwards or moving sideways in a range. We need to figure this out specifically on the weekend when things are quiet.
Once we are done with that, we drill down on the 24 hour timeframe to determine whether support and resistance zones exist.
If either of the zones are present in the 24h chart, we will consider if there are any near term trends on the daily time frame.
Sometimes you will find that the market is consolidated in a range (never trade a consolidated area even if a signal exists).
Finally, we will conclude with checks as to whether the 24 hour time frame chart is trending or moving in a sideways manner.
Ultimately, our approach to trading this particular market is determined by these answers.
Does a Forex Trading signal exist?
The next thing that we will do to start making money is to figure out if a clear price action trading signal is present and is in line with our weekly and daily chart analysis.
Because we have done prior analysis of this market, we want to find out if the signal that we are seeing is making sense according to what the market is speaking.
If we find that the weekly time frame is showing the beginning of an uptrend but the 24 hour time frame is showing a strong long-term uptrend, we will be looking for buy signals and not sell signals.
On the other hand, if the market is range-bound, we will be considering sell signals at resistance zones and buy signals at support zones.
The purpose for carrying out this analysis is to identify suitable entry points.
Most of the time, we are looking at Trend, Level and Signal. However, sometimes you may realize that only the first two are present. You might consider a ”blind entry” as long as the first two agree.
Now, after observing the 24 hour, 4 hour or 1 hour time frames within a few minutes and you realize that no signal is present, you can close down the chart and do other things for the day. There is nothing worth trading.
I always teach my students that they’d rather be out of the market/neutral rather than gambling with low-probably trades which lose money. You can check out my Forex and Cryptocurrency trading mastery course here if you want to join.
Is your mental state in order as you enter the trade?
One of the things I tell those who want to trade Forex for a living is that once they have horned their skills, they should only enter trades when they are in the right state of mind.
If you analyze your past winners and reflect on the exact moment you entered those trades, you will realize that you were also calm, collected and in an objective state of mind.
You will need to ask yourself whether you are entering that trade out of revenge or greed.
Remember, trading is the ultimate test of your character. You have to be honest with yourself because no one will be watching.
The other thing to remember as far as your state of mind is concerned is that if you just come out of a big winner (assuming you used the right risk-reward ratio), you may be overconfident, and that will cause you to take unnecessary risks if you enter another trade right after.
Do you mentally accept the risk of getting into a trade? The psychology of trading demands that you accept the fact that every trade outcome is 50/50.
This would mean that overtime, your wins and losses are randomly distributed in such a way that your profits will not depend on the outcome of a particular trade.
I sometimes win 2 out of 5 trades. But I still make money after those trades have been taken because of using a good risk-reward approach.
If you are determined to become a successful Forex trader who earns a living through trading, you are going to need a lot of help… which is why I created this trading course.
I may mentor you on what I know. But when it comes to success, it’s upon you to work hard and see that you implement my lessons as taught therein.