Do You Have a Pre-Trade Checklist?

07/28/2010 12:01 am EST


Michael Radkay

President and CEO, RDS Trader, LLC

Did you ever sit down to trade and realize the market price isn't where you want it, but you enter anyway without waiting for your spot? How about this one: You sit at your desk, scan the charts, and see that if you sat down five minutes earlier, you would have been able to take advantage of an awesome opportunity? I'm sure you understand the words floating in my head just thinking about it.

Here is another: You know the trade is going to hit and realize that it may take an hour to get there, but you can't wait because you promised your family or friends that you were going meet them. Is the smoke starting to come out of your head thinking about all of those missed opportunities? I know a handful of traders through my 20-year career who can't even step away from the market for a few minutes. They often joked they were going to put a catheter in just so they could relieve themselves without having to walk away from their computers! Sorry for the overshare, but knowing some of those guys personally, I'm not sure they were kidding!

A career in trading isn't like most nine-to-five jobs where you go to work, complete your daily tasks, and pick up your paycheck. This 24/6 trading job is more like a fireman or a policeman, but without the promise of a salary. You can also end a trading day down money, which makes things a little tense at times. Needless to say your internal thermometer boils when the market isn't in the right spot during your trading hours because you need to sleep and rest sometimes. With this notion swirling in your head and the clock ticking, it oftentimes leads to haphazard or random trades that leave you screaming and wondering in hindsight why you took them.

Those who step into this arena need to realize that we are "on call" like policemen or firemen and need to conserve our mental and financial energy so we can spring to action effectively and efficiently when the time is right. Most traders hear me and seem to understand this when I first say it, but when the dollars start flying around, all bets are off. Everybody gets so revved up that they begin to start fires by not waiting for their entry spots and force trades due to impatience. The fear is that you might miss something big. Sound familiar? To avoid inactivity and waiting around, most traders start shooting off their gun blindly (i.e trading at will) just to see if they can finally hit something. The problem is when prices do finally hit the original area of interest (and they always do), you can't participate because you are either out of bullets or are sitting there dejected and out of mental energy to compete due to the earlier damage done to your account.

If this sounds like you, there is a simple solution to your problem, and a piece of technology that you probably already have, but don't even realize you have it. On the platform, we use what is called a "Call Level Alert." This technology allows you to pre-set an alarm, auto e-mail, text, or execute a trade for you without you having to be there 24/7. You can also auto-set a profit parameter attached with a stop-loss to your trade called an "OCO," or “One Cancels Other” for peace of mind, if you can't wait around.

Some of you reading this may think I am talking about a black box or robot technology that runs 24/7 without you having to be there. This is only partly true. In my opinion, you need to have a balance of human intervention with today's unforgiving and sometimes inhuman technology. When the markets turn, robot technology doesn't know how to think for itself and shut down as the trading strategy breaks down. Also, robot technology builds lazy habits as things out of sight are often out of mind and we become comfortable with things running on autopilot. We soon forget what to do when the trend shifts by fumbling for the password or scrambling for the misplaced phone number to call when the smoke detector goes off.

To avoid panic, we build a daily ritual of checking on the functionality of our computer equipment, receive updates on market volatility moment to moment, and balance it with our personal risk tolerance as conditions change. Keeping our finger on the pulse of our electronic marketplace has been vital to our success. To give you further peace of mind, we would like to offer our personal, 12-step pre-trade checklist:

1) Balance personal risk vs. market volatility
2) Have a strategy

3) Know the strength and mood of your teammates and your opponents. When you are long, your teammates are the buyers and your opponents are the sellers. When you are short, your teammates are the sellers and your opponents are the buyers

4) Know where you are getting out before you get in

5) Review the economic calendar before you start to trade

6) Don't play in a market just to play. Make sure your parameters are there for entry. Execute when it's there, and exercise patience when it’s not!

7) Have a news feed or market news channel running in case a geopolitical event hits

8) Is your workspace distraction free

9) Is something outside of trading bothering you or providing stress and anxiety when you sit down to trade? (If so, don't trade that day!)

10) Is your computer and Internet service working properly? Have phone numbers or backup plans in place should these fail

11) Are your execution platform and charts working? ( You can download the software on your mobile phone for backup)

12) Always have enough in your account to trade tomorrow!

You can't win if you don't play. Prosperity is at your fingertips—all you have to do is grab it!

By Michael Radkay of
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