Checklist Forex Traders Must Complete Before Placing a Trade

12/15/2014 9:00 am EST

Focus: FOREX

Dave Floyd

President, Aspen Trading Group

Dave Floyd of Aspen Trading Group shares four tips to include in a trading checklist, which all forex traders should consult before placing a trade.

We've all been there...

You've isolated one simple technical pattern that appears to mint money. The curve fitting back-testing proves it. False security to be sure…but I digress.

But as each forex trade gets logged, your account balance fails to grow, in fact, it is contracting.

While everyone strives for simple solutions—I mean, look at the weight loss industry—there is not a silver bullet for traders.

But…becoming a more effective trader might be easier than you think.

Shall I explain?

The Checklist You Must Complete Before Placing That Trade

Before you place that trade, you need to consider the following:

1. Is there a valid technical pattern in play currently?

Whatever your favorite technicals are, is there a valid setup?

For instance, a simple candlestick pattern alone is not enough to place a trade. You need a few different technical patterns coming together to create a robust signal.

2. Consider the fundamentals/macro backdrop

Does the current macro backdrop support the technical pattern?

Personally, you cannot force say a bearish technical pattern on to a macro backdrop that is bullish.

You just killed your odds of making a successful trade.

3. Do related asset markets support your trade idea?

You can’t place square pegs in round holes.

Case in point. You are looking to get long EUR/USD because you see a bullish technical setup.

However, the Dollar Index (DXC) is in a sharp uptrend.

Guess what? There is zero chance that EUR/USD will move higher as long as DXC is trading higher.

A simple check of this can save a lot of money over time.

4. Do you have an objective component to your trade selection process?

Subjectivity and feel/experience are invaluable tools for traders and it takes a long time to develop them.

However, adding a rule based indicator to your selection process can greatly enhance your effectiveness.

Summary

There are many ways to approach and succeed at trading (no one person/entity has a lock on that). However, finding an approach that works for you takes time.

I am of the belief that a comprehensive approach is required and traders that rely upon just technicals or just fundamentals are at a disadvantage.

By Dave Floyd of Aspen Trading Group

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