Last Updated on November 20, 2024
Trading in funded accounts is tied to specific rules, risk indicators, and performance metrics set by funding firms, demanding precision, discipline, and consistency. The best way to respond to these demands is by creating a thorough pre-trade checklist. A pre-trade checklist is a comprehensive set of boxes that traders tick before they dive into each trading session or individual trade. The idea of having a pre-trade checklist is to ensure that you are well-prepared, ultimately improving your performance and protecting your funded account.
So, if you have never heard of a pre-trade checklist or are wondering how to create or refine one – this article is just for you. We will explore what makes it so crucial for funded traders and how to design the ultimate pre-trade checklist. Without further ado, let’s dive in.
The Role of a Pre-Trade Checklist in Funded Trading
Trading funded accounts means you are trading with someone else’s money. As a result, it is natural that they will want you to act responsibly – first and foremost, to preserve their capital and, secondly, to grow it. To ensure this, funded traders have to operate within specific guidelines and risk rules – from drawdowns to loss limits. The best way to guarantee you will adhere to them is to have a pre-trade checklist – a structured approach that you will follow unconditionally.
Having a checklist will ensure that you will:
- Stay focused and disciplined, keeping your emotions in check and making decisions based on your plan, not impulses.
- Be consistent, focusing on gradual performance over one-time profits and sticking to your plan day after day.
- Minimize the risk of mistakes by not entering 50/50 trades.
- Be more accountable to your funding provider by focusing on self-auditing and self-correction.
In that sense, a pre-trade checklist in funded trading accounts is much more than a formality; it’s a blueprint for ensuring that you will continue progressing.
The Essential Components of a Funded Trader’s Pre-Trade Checklist
A comprehensive pre-trade checklist for funded traders should include components covering the following areas of preparation:
1. A Fundamental Analysis-Based Market Snapshot (Micro- and Macroeconomic Conditions and Market Sentiment)
Before you start your trading day, take a minute to consider if there are upcoming high-impact events that could cause volatility. Check central bank announcements, employment data, or other market-moving news and data releases on your economic calendar. Prioritize high-impact events, such as Federal Reserve announcements or major earnings reports that could cause price swings. Then, consider whether you’ll trade through the event or step aside to hedge against erratic price movements.
It is very useful to know that major events that affect the financial markets are typically scheduled well ahead of time (e.g., GDP releases, employment reports, etc.). Helpful tools to familiarize yourself with upcoming events include the economic calendars of Forex Factory and Investing.com or the earning report schedule of Earnings Whispers. In addition, many trading platforms allow for seamless integration of third-party economic and earnings calendars or support built-in alternatives.
Also, don’t forget that trading is a game of navigating other people’s expectations about the market. In that sense, it is crucial to figure out if the market is in a “risk-on” or “risk-off” mode, as it will affect currency, commodity, and stock trends. Understanding the broader sentiment can help you anticipate likely moves and judge whether the volatility levels will work in your favor or against you. To assess overall market sentiment, simply check news headlines, market commentary, or sentiment indicators. Look out for extremes.
2. Technical Analysis-Based Market Snapshot (Key Market Levels and Price Trends)
Before you dive into the markets, complement your fundamental analysis market findings with the technicals. For starters, check whether there are clear trends or consolidation signals on the charts. Knowing the trend or the likely next direction helps you avoid trading against the market.
For example, it is crucial to start by marking out key support and resistance levels to avoid surprise reversals. In addition, focus on confirming trend direction with indicators like moving averages or trend lines.
That way, you will be able to identify the strategic points for entries, exits, and stop-loss placements. This, in turn, will ensure that you won’t be risking money in a choppy market or failing to capture potentially winning trade opportunities.
Give another round of review of your trading plan to confirm that your preferred indicators (e.g., RSI, MACD, Bollinger Bands) align with your trading strategy and the discovered market opportunities.
Once you analyze the market through the technical (indicators) and fundamental (news) tools in your arsenal, you will have the needed data to design the perfect entry and exit setup. That way, you will ensure you enter and exit trades based on strategy, not impulse.
On entry points – establish a set of criteria that must be met before you enter a trade. This might include factors like candlestick patterns, alignment of moving averages, or breakouts.
Since knowing when to exit is just as important as when to enter, define your exit strategy in advance. Think about the most suitable levels to place your stop loss, and define your take-profit. This is especially important for adhering to your drawdown limits to preserve your capital and funded status.
Take into account the position sizing requirement of your account as well. Don’t forget that over-leveraging is a quick way to lose a funded account. To stay in line, follow a strict “risk-per-trade” rule (more on this in the next section).
3. Risk Management Protocols
As Ed Seykota famously said,
The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses.
So, how to do that?
A crucial point in your pre-trade checklist is reminding yourself of the importance of the 2% rule. For those unaware of it – it simply mandates that one should not risk more than 2% on a trade. Knowing your exact risk per trade protects you from significant losses and helps you preserve your capital.
Furthermore, ensure each trade has a clearly defined stop-loss level, which should be based on your strategy and market conditions. Don’t just rely on a “mental stop” or arbitrary levels. Instead, have a concrete, actionable level and stick to it. Learn more about mastering stop-losses here.
In addition, consider what is your optimal risk-reward ratio and always strive for it. For example, most funded traders use a minimum risk-reward ratio of 1:3 or more to ensure profitable trades outweigh losses over time. Alternatively, a 1:3 risk/reward ratio means you will risk $1 to earn $3. A favorable risk-reward ratio is particularly important in meeting the profit targets funded programs require.
For more risk management know-how, check out our dedicated guide or consider the advice of Lee, one of our funded trader success stories.
4. Mental and Emotional Preparedness
Have you noticed how, in every sport, athletes take a deep breath before a decisive moment to take the pressure off and retain their focus? The trading world equivalent to this is focusing on your emotional and mental preparedness before the opening bell.
So, how to do that?
Start with a stress check. Funded trading can introduce pressures that can influence your emotional state, so it is really important to only trade when you feel prepared to. In that sense, a quick self-assessment on stress levels, mood, or any potential distractions can help you recognize if you’re in the right frame of mind to trade. If you’re feeling overwhelmed, anxious, frustrated, or overconfident, it may be better to sit out and go again tomorrow.
A straightforward yet effective measure is creating mental reminders. For example, write down a few phrases, such as “Stick to the plan” or “No revenge trading,” to help maintain discipline and composure in fast-moving markets.
Also, consider visualization, which is when you imagine yourself following the checklist, executing trades calmly, and adhering to your risk management rules. By envisioning different favorable and unfavorable scenarios, you will be prepared mentally if/once they materialize, helping preserve your calm.
Since trading can be very intense, it is crucial to make breaks a part of your routine. Scheduled breaks, even short ones, allow you to recalibrate, avoid burnout, and stay focused.
Mark Douglas, author of Trading in the Zone, wrote,
Trading is probably the most difficult challenge you will ever face, psychologically.
So, in that sense, managing your mental state and emotional preparedness is probably the most important area to focus on in your pre-trade checklist.
5. Funded Account Compliance and Platform Check
Start each day by evaluating the state of your account balance, especially in a funded account where mistakes can be costly. This will help you map out your next moves and avoid unnecessary drawdowns, ensuring you can maintain trading flexibility. It is also crucial to confirm that things like leverage and margin settings are in line with the requirements. For example, since different markets and assets require varying levels of margin, it is crucial to verify that you can execute your trades without risking a margin call. In addition, make sure you’re using the proper leverage and that there are no restrictions on trades you plan to make.
Also, if you are participating in programs with progressive stages, such as Earn2Trade’s Trader Career Path®, it is good to be mindful of the milestones and look out for potential changes in the requirements as you advance through different account sizes.
Last but not least, focus also on the technical side of things. Check if the platform is working smoothly and if your connection is stable. Connectivity issues, lagging charts, or order execution errors can have a significant impact. Doing pre-trade tests on the connection and stability will ensure you won’t incur lag or suffer technical issues that might mess up your trades. Restart your platform or device if necessary to ensure optimal performance.
10 Key Pre-Trade Questions Every Trader Should Ask
The information we have focused on so far is quite extensive and might seem too challenging to sum up in a structured pre-trade routine. If that’s the case for you – here is a shortcut. A helpful way to ensure you have everything covered and are well prepared for the opening bell is creating a checkbox list of essential questions to ask yourself before the start of each trading session. Here are some examples:
☐ Are there upcoming macro- and microeconomic events that could impact my trades?
☐ Is the market sentiment aligned with my trade setup?
☐ Have I identified key support and resistance levels?
☐ Have I figured out the key entry points for my trades?
☐ Do I have a clear exit strategy in place?
☐ Am I risking a reasonable amount on this trade?
☐ Does the trade meet my minimum risk-reward ratio?
☐ Am I in the right mental and emotional state to trade today?
☐ Is my trading platform functioning correctly?
☐ Am I fully aware of and compliant with the rules of my funded program for this session?
As you can notice, these are all binary questions. If the answer is “yes” – you are good to move to the next one. However, if it is a “no,” it means you have work to do. Don’t start your trading day without turning the “no” into a “yes.”
However, it is worth noting that having a checklist is only effective if you consistently use it. In fact, learning to stick to it is where many traders fail. Among the tips to ensure you don’t include:
- Print your pre-trade checklist out or keep it visible digitally (e.g., using apps like Evernote, Notion, or Google Sheets).
- Set reminders and alerts (e.g., for checking the economic calendar daily) to keep you more engaged.
- Integrate your checklist into your daily trading routine to make it habitual.
- Review and adjust your pre-trade checklist regularly (e.g., look for items you consistently skip and revise if needed).
- Hold yourself accountable by noting in your trading journal if you deviate or skip engaging with your pre-trade checklist (e.g., use a mobile app like this one or rely on a mentor or friend).
- Reward yourself for consistency by introducing a system with small incentives.
Ready to Test Your Pre-Trade Checklist?
Building and adhering to a pre-trade checklist, incorporating the elements of fundamental and technical market analysis, strategy review, and psychological preparation, is a cornerstone of success for funded traders. In a high-stakes environment where discipline is essential, a well-structured checklist not only safeguards your funded account but also helps you maintain consistency, manage risk effectively, and maximize your chances of being profitable. Now that you are well aware of how important a pre-trade checklist is for your ability to better manage the demands of funded trading, it is time to get to work and put yours to the test. And most importantly – your ability to stick to it. The best places for this are Earn2Trade’s programs, giving you the platform to learn and evolve, while also kickstarting your journey toward a professional trading career.
