Questions to Ask Before Any FX 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, and 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 placing a forex trade?

What's on the Economic Calendar?

Before the trade-any trade-make sure that keenly aware of the economic calendar and dominant headlines not just for that day. 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 you can use sites to see what traders are reacting to and therefore discounting into the market. This allows to gauge the potential risk of the session, when volatility is most likely to increase, and what time frames will consider in this environment.

What Is the Directional Bias?

Time frame selection is determined in great part by identifying the directional bias in the market. Whatever symbol you are trading, the daily time frame is the first consideration, and not necessarily for a trade, but to know what the dominant psychology of the market is.

By understanding the sentiment, momentum, and trend in the markets, you are actually identifying whether it's the bulls, bears, or no one who's in the driver seat. Trending daily time frames have what call a "trending directional bias," and that is the best type of market to focus your efforts on because there is a clear, dominant psychology.
You want someone behind the wheel; you really shouldn't care if it's a bull or bear. If there is a trending directional bias, enter a trade where the trend is valid across all intraday time frames, and of course, on the daily itself. It is always the path of least resistance to follow the trend, and therefore, better to trade a symbol that has a trend on the daily.
What Is my Cost Per Trade?

Another aspect of a trade is cost and pip movement. Many traders do not factor in the cost for a trade before they enter in terms of understanding the spread, and this can change slightly for each of the major sessions. Cost per trade can also include rollover, if applicable to your trading account and depending upon how long you hold the position.
Each market has a rhythm of its own whether we're talking about a stock, futures contract, or forex pair. For forex, need to know exactly what the expected pip movement range is for each pair and trade during each hour of the day. This is a must.

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 the trade
Which time frame to focus on
Which strategy to use
How much risk tolerance you will need

The last step of a trade-and the last thing you need to consider before the entry-is your risk/reward ratio, but all too often this becomes the point at which traders begin their trading plan, and that'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.

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