5 things to check before entering a trade in forex

Navin Prithyani shared the elements every trader should look at before entering a trade with us. Have a look below for his trading checklist: 

1 - Do you have a trading plan?

So you did your analysis, looked at your charts, and understood what the market is trying to do. And you're ready to trade! But before opening your broker's platform, you should always take a step back and think: 

- What will I do if the price is not acting the way I am expecting it to?
- Where should my stop loss be?
- At what price should I put my take profit? 
- If the price moves quickly to my take profit, in what condition should I increase my take profit?
- What signs will indicate that my trade may not work?
- What indication will show me that I should close my trade?
- etc

Answering these questions before entering your trade will help you manage it correctly, and avoid emotional reactions. Write down your plan, keep it nearby during your trade, and stick to it - a plan is only valuable if you follow it.

Useful Tools:
- Urban Forex Free Webinar on Trading Plan
- Any white paper or notepad for you to write down your trading plan

2 - Is the Market Volatile?

To trade any market, be it Forex, Stocks, or Cryptocurrencies, there is one thing any trader needs: movement. If the market is not volatile, you will struggle to make any money out of it.

So how can you determine if the market is volatile?

- Economic Calendar: News events can really shake things up. But if there's no news or it's a holiday in the USA, Canada, Europe, the UK, or Australia, don't expect much action.

- Volumes: This is a key indicator for most traders, including Navin Prithyani here at www.urbanforex.com. If the volume is really low, this means that big players (such as banks and funds) are not trading right now. The movements of the market may be small, or fake.

- Market Opening: Most trades happen at the opening of a market (Sydney, Tokyo, London, and New York). Try to trade around the opening as this will give you more movement, and therefore more opportunities.
 

Useful Tools:
Economic Calendar:
- Urban Forex Instagram page (check our daily stories),
- Investing.com
- FXStreet.com
- ForexFactory.com

Volumes:
- TradingView Volumes indicator
- Urban Forex Education (email us and ask for the Urban Forex Bundle Program)

Market Opening:
- Market Countdown (for mac only),
- Market Opens
- Babypips

3 - Did you check the Correlation?

Here is another tool that can help you with your entries, exits, and pair selection. Correlation is important during your entire trading process: 

-When you're analyzing the market, correlation can help you pick the best pair, the ideal being to trade a weak group, against a strong group. Let's say that in your trading timeframe, the EUR and CAD groups are strong and the USD group is weak, your chances of EUR/USD going up are higher than EUR/CAD.

- For your entry and exit strategies, analyzing how the groups you're trading move together can show you if your trade is following a group movement or acting independently. As traders, we like to see a group moving together, it's proof that the movement is real and it increases the probability of the trade playing out in our favor.

Remember, correlation is only part of trading. You need proper analysis too. If you want to learn how to use correlation in your trading, join our Urban Forex Bundle. Shoot us an email at [email protected] to find out more.

Useful tools: 
Correlation trade setup:
-TradingView

Market correlation App:
- FX Meter

Education:
- Urban Forex Free Webinar on Correlation

 
4 - How big is your spread?

It's important to know how big your spread is before entering a trade. Spreads can vary based on:
- News events
- Your broker
- Trading pair
- Trading hours

Listen up: sometimes spreads can become huge. During news events, it's not uncommon to see spreads of 20+ pips. So if you're trading a pair with a big spread, remember to include it in your risk calculation. You'll need a bigger stop loss to stay safe.

Just so you know, a reasonable spread is between 0 and 5 pips. If you notice that your spread gets big even when there are no news events, compare your broker's spread with others. Spreads play a big role in profit/loss and risk-to-reward ratio. That's why finding a trustworthy broker is essential for success. Check out our article on brokers for peace of mind.

Don't forget to confirm your spread before entering a trade. Stay smart and trade safe!

 
5 - Did you calculate your maximum risk?

Protecting your trading account is the #1 rule in trading, and it's essential for your long-term success. To do this, always put a calculated stop loss in place. Here's how:

1. Determine how much of your account you're willing to risk for each trade - the industry recommends between 1 and 2%.

2. Know where to place your stop loss. After analyzing your trade, decide where you want to exit if the price reaches a certain level. This will help you avoid making impulsive decisions.

Remember to always be aware of your own risk tolerance and only take on as much risk as you're comfortable with.

Useful tool: 
- STINU - Position Size Calculator APP
- Urban Forex Education (email us and ask for the Urban Forex Bundle Program)

And with that, you're ready to avoid most trading errors! Just focus on your analysis and follow your trading plan.

If you want to improve your market analysis skills, we highly recommend Navin's best-selling program, Mastering Price Action 2.0. Navin Prithyani will show you how to read the charts using price action.

Now you're all set for safe and fun trading!

With Pip Love,
Lucille,
Urban Forex Team