“Give me six hours to chop down a tree and I will spend the first four sharpening the ax”, said Abraham Lincoln on preparation and planning.
If you’re a trader, you shouldn’t be spending four hours on preparation, rather 5 hours 59 min.
Because the activity of trading merely means order execution. It is a one-minute task.
But it is the ‘decision making’ part that precedes the order execution is the critical part, as it determines the success and failure of your trades.
To make an irreproachable decision, you got to have all the necessary information at your disposal and then process it meticulously.
Traders generally club the processes of info collection and processing as ‘analysis’. And dedicate their chunk of time in the processing part only.
The emphasis on the processing makes you under-weigh the effect info collection has on your final decision.
For instance, you see the market at the highs and decide to go with the trend and enter a buy trade. But the market tumbles down to your stop loss in seconds. Upon examining failure you find that market was in fact in an overbought zone and you were oblivious to the fact. A simple drag and drop of RSI indicator could have shown it to you. Ouch! It stings when you make such a howler. But, it happens nevertheless.
Most of the times, your failure is due to hasty decisions taken with little information and regret later, why does always happen to me?
Had there been different information on the table (overbought) you would have taken a different decision or at least procrastinated the decision.
So, information matters.
Here are the 5 pre-trade routines that bring forth all the necessary information to your table.
One eye on the long-term technical levels
Long-term levels — trendline, support and resistance levels — are critical levels.
The trend is your friend until it ends. And these levels have the potency to mark the end.
They render a reversal if at all a pullback, upon immediate impact.
The problem is when you incessantly focus on the short-term charts, you tend to ignore or be oblivious to it.
You get enlightened about these levels only when you are ambushed by the market.
So, let’s save the regretting part for our actual mistakes. Not for ignorance.
Visit the daily and weekly time-frame before making the final decision.
Or, make it a routine to analyze long-term charts as part of your weekend.
Bonus Tip: Analyzing long-term charts offer you lame duck short-term trades frequently.
Another eye on the daily economic releases
The economic releases and news events set the trend in motion for the day.
Most times they are a nemesis to a technical trader, as they have the power and will to change the short term status quo. It just clips your stop loss and then goes business as usual.
Further, when you’re immersed in your charts, you are vulnerable to miss the news release moments.
So, keep a note of the news docket for the day.
Start your day by visiting the economic calendar.
Also, check it out just before trade entry as well, as part of your trade routine.
Or there is a better way.
Take our help. Get our free Newsfeed Indicator. It delivers economic news releases directly to your MT4/MT5 terminal. And enables you to be on your tiptoes. Check it out here.
A word of advice on news trading
Closeout positions before the news release.
Never bet on an economic news release if you aren’t an economic expert.
Never initiate a trade only based on a news release. Use a technical confirmation as well.
Track down short-term price action
No matter what type of trader you’re — scalper, short or long-term trader, look out for short-term price action.
Read and study the behavior of the price action. Many a time, it oozes out clues of a long-term trend shift.
Further, take advantage of short-term support and resistance levels to make a better entry. For instance, if you want to go long on a currency pair, don’t enter on a short-term resistance.
Always respect the short-term levels. It shows instant profits on the screen which renders a conviction of your decision making.
Plan your trade, Make it a routine!
Don’t plan for your expectations because the market isn’t going to hand profits on a plate.
Expect surprise. Imagine the insane probabilities that can work against your plan.
List out several exit plans and partial profit booking areas.
Most importantly, write it down, especially if you’re a newbie.
Because when you see sudden swings in the price you throw your cool to the sinks and succumb to your emotions.
For instance, your trade is in 100+ pips profit, but the market gives up 50 pips suddenly. What would you do? Your instincts will push you to close the trade and so you do. However, the market recovers and rallies 250 pips which was your expected target. You lost 200 pips to your impulse. It happens day in day out in trading. Had you planned ahead on what to do if the price faced resistance or expected a pullback, which is part and parcel of any rally, you wouldn’t have panicked and acted inadvertently.
It’s common sense — when you expect something, it isn’t a surprise.
Your preemption may not be right the first time, but it is going to only improve as you mature with the market. For further reading, #10 Tips to Build An Effective Forex Trading Plan.
Take a second opinion
We all have our moments. Sometimes we get it right time and time again.
Other times we get it awfully wrong.
We are prone to biases which influences our decision as well.
Remember no technique is fool-proof.
So just take a second opinion from another methodology rather than your strategy. Say, you’re a price action trader, take a cue from indicators like RSI or stochastic.
Or take an opinion from a signal provider like us. We do provide a lifetime free service too.
In case it renders a different opinion, revisit the decision-making process once again. At times, you can dodge a howler.
However, if you’re confident with your strategy you can still proceed with the trade.
And there is no harm in taking a second opinion lest making it your pre-trade routine.
You can’t make a foolproof decision with bits and pieces of information. You got to have it full. The pre-trade routines discussed above takes you a step closer in getting it. Although it might seem trivial, it holds the difference between life and death of your trades, at times. So, do it consciously and make it a pre-trade routine for better performance. Happy trading!
PS: Trade during the best Forex market hours for better results.