Does this trade fit my chosen trading style? Whether it is: swing trading, momentum, break out, trend following, reversion to the mean, or day trading? Does this trade fit into the parameters of who I am as a trader, or is it just based on my own fear or greed?
- How big of a position do I want to trade? How much capital am I going to risk? Am I limiting my risk to 1% or 2% of my trading capital? Knowing where my stop will be how big should my position size be to limit my risk?
- What are the odds of my risk of ruin based on my capital at risk?
- Why am I entering the trade here? What is the entry trigger to take the trade? Is this a quantified entry on my trading plan?
- How will I exit with a profit? A price target or trailing stop?
- At what price will I know that I was wrong? Where is my stop loss based on the position size?
- Will I be able to admit I was wrong and exit the trade if my stop is hit, or will my ego make me hold and hope? Can I trade this position size and keep my ego out of the trade?
- Is the risk small enough that I can emotionally handle the loss without blaming the market or myself? Is my risk small enough to keep my mind and trading plan in control?
- Can I really risk this money or do I need it for upcoming bills? Trade with risk capital not living expenses.
- Am I committed to staying disciplined and following my trading plan on the trade? Free-styling a trade that is losing is usually a formula for disaster.
I believe the answers to these questions will determine your success in any one trade more than anything else.