The Three Things You Need to Know Before the Trade
Many times trading gets boiled down to the entry, the profit target, and stop loss. Sure, these are important, in fact they are the building blocks of a trading plan, but they aren’t all that you need to know. Quite frankly, they are the last three things you need to know. So then what are the first three things that you must do before the trade? These first three things are the most influential because they determine the following:
- Which pair you will even consider for a trade
- Which direction you will enter a trade
- Which time frame to focus on
- Which strategy to use
- How much risk tolerance you will need
The last step of a trade – the last thing you need to consider – before the entry is your risk to reward ration but all-too-often this becomes the point at which traders begin their trading plan and it’s why so many traders struggle. Unfortunately it’s because they don’t understand the larger forces at work: the risk environment, the economic environment, and the dominant psychology of the symbol they are trading.
We’ll examine these broadly in this article and re-visit this topic in more detail in the future, but let’s start the conversation now.
- Economic Calendar - Before the trade, any trade, I make sure I am keenly aware of the economic calendar and dominant headlines not just for today but what happened while I was away from my trading computer. For economic releases that means looking at the week in its entirety with particular emphasis on the session that proceeded, the current session, and what the market could be looking ahead to. For the headlines, I will look to sites like Forex Factory and Bloomberg...