When I first started trading, I dove in headfirst. I had the excitement of someone just getting into a new hobby—and the same overconfidence that comes with it. I thought, “How hard could it be? Buy low, sell high.”
Spoiler alert: It wasn’t as easy as I thought.
I quickly realized that trading wasn’t just about making a lucky guess. It required strategy, discipline, and a whole lot of planning. And that’s when I learned the importance of having a checklist.
As a beginner trader, I found that having a clear checklist before each trade helped me stay on track, reduce emotional decisions, and minimize risk. So, if you’re just starting out, don’t even think about placing your first trade without this checklist.
Why You Need a Trading Checklist
Before we get into the checklist itself, let’s talk about why it’s important. When you’re trading, it’s easy to get swept up in emotions like fear, greed, or excitement—especially when you’re watching your screen and seeing the prices move up and down.
A checklist is like a compass. It keeps you grounded and ensures you’re making rational decisions, not emotional ones. It forces you to slow down, think critically, and avoid jumping into trades just because everyone else is doing it or because you’re in a rush.
And trust me, a little pause before hitting “buy” or “sell” can make all the difference.
The Beginner Trading Checklist
1. Know Your Risk Tolerance
Before even looking at charts or thinking about your first stock pick, you need to know how much risk you’re willing to take.
Risk tolerance is different for everyone. Some people are okay with losing 10% of their trade if it means a bigger potential reward, while others might panic if they lose even 3%.
How to Determine Your Risk Tolerance:
- Ask yourself: How much can I afford to lose on any single trade without losing sleep over it?
- Consider your financial situation: Are you trading with money you can afford to lose, or are you relying on this for your rent or bills?
- Understand your emotional response: Are you likely to panic if the price drops a little, or can you ride out small fluctuations?
For me, when I first started, I learned the hard way that not every loss can be recovered easily, especially if it’s a big one. So, I started with small positions and slowly adjusted as I got more comfortable with the ups and downs.
2. Choose the Right Market Conditions
Before you even think about placing a trade, you need to consider the market conditions. Is it a good time to trade?
The market can move in trends: bullish (going up) or bearish (going down). In the beginning, it’s important to understand which trend the market is in and how that will impact your trades.
Quick Steps to Check Market Conditions:
Look at major indices (like the S&P 500 or Dow Jones): Are they in an uptrend or downtrend?
- Check the news: Is there any major economic event or earnings report coming up?
- Identify the market’s volatility: You don’t want to trade when the market is too volatile (unless you’re comfortable with higher risk). A calm market is usually easier to trade.
When I first started, I made the mistake of trying to catch trades during wild market swings, hoping I could “time” them. Spoiler: It didn’t work out. I learned that understanding market sentiment helped me choose more successful entry points.
3. Set Clear Entry and Exit Points
One of the biggest mistakes I made early on was not having a clear plan for where to enter and exit a trade. I’d see a stock on the rise, jump in, and then get stuck wondering when the right time to sell was.
The Solution: Define Your Plan
- Entry Point: What price or condition will trigger you to enter the trade? It might be when a stock breaks above a resistance level, or when a pattern confirms an uptrend.
- Exit Point: Have a plan for when to sell, whether it’s a target price or a stop-loss level (a price point at which you’ll sell to limit your losses). Always have an exit strategy before you buy.
- A good rule of thumb: If you’re trading on a 1% risk, set a goal of at least 2% reward. This way, you’re positioning yourself for a potential profit that outweighs the risk.
4. Check for Overtrading
If you’re anything like me, you’ve probably experienced that temptation to trade just for the sake of it. But overtrading is one of the quickest ways to burn through your account.
How to Avoid Overtrading:
- Stick to your checklist: Only trade when the conditions match your criteria.
- Set a daily or weekly limit: Decide how many trades you’ll make in a week and stick to it.
- Don’t trade out of boredom: This is one of my personal mistakes! I’d sometimes trade just to feel “active,” but that often led to losses.
I once had a week where I felt like I was on a hot streak, so I kept entering trades—even though the market wasn’t ideal. I ended up giving back most of my profits. Now, I check my checklist and only trade when it truly aligns with my criteria.
5. Consider Your Position Size
Don’t risk too much of your account balance on one trade. Position size is crucial in managing risk.
A general rule: Risk no more than 2% of your total capital on any single trade. For example, if you have $1,000 in your trading account, you should risk no more than $20 per trade.
To Calculate Position Size:
- Decide on the amount of risk you’re comfortable with (let’s say 2%).
- Calculate how much you’re willing to lose per trade ($20).
- Figure out the distance between your entry point and stop-loss.
- Use this info to calculate the number of shares/contracts to buy/sell.
- It’s easy to get carried away when you see a potential “hot stock,” but keeping your risk in check is essential for long-term survival in trading.
6. Have an Exit Strategy for Profits
We often talk about cutting losses, but it’s just as important to know when to take profits.
You don’t want to be greedy and hold onto a trade for too long. Set a realistic target based on your entry and exit points, and if the stock hits your target, take the profit.
I once held onto a stock thinking it would go even higher, but it reversed, and I lost most of the gains. Now, I set clear profit-taking rules—whether it’s a percentage gain or a set price target—and stick to them.
7. Track Your Trades
This might seem tedious, but it’s vital to track every trade you make—the wins, the losses, and everything in between. Keeping a trading journal helps you spot patterns, identify mistakes, and improve.
You don’t need a fancy system. Just record:
- Entry and exit points
- The reason for the trade (e.g., breakout, earnings, etc.)
- The result (win or loss)
- What you learned from the trade
- This was a game-changer for me. I found that I was more successful when I followed a pattern of systematic thinking and kept learning from each trade. Over time, I improved my accuracy and reduced mistakes.
Final Thoughts: Stick to the Checklist
- Starting out as a beginner trader can be overwhelming. But by following this checklist, you’ll be on your way to making informed, disciplined decisions rather than jumping into trades based on emotions or hype.
- Remember: Success in trading doesn’t happen overnight. It’s a marathon, not a sprint. Stick to your checklist, stay patient, and don’t be afraid to learn from your mistakes.
- By following these simple steps, you’ll be able to trade with confidence—and maybe even avoid the mistakes I made along the way.
Next Article To Read: I Followed a Trading YouTuber — Did I Make Money?