Let’s talk about the dreaded “R” word: routine. For many, it’s a word that conjures up instant thoughts of mechanically undertaking tasks that are necessary and tolerated but hardly titillating.
And for active traders who tend to thrive on thrill, nothing sounds less sexy than that.
But routine doesn’t have to mean rote. In fact, adopting a trading routine is a vital practice that will actually set you up to be nimble and see exciting opportunities in a new way. Think of the world’s elite athletes. High performance starts with preparation. Game time is actually very limited relative to the preparation that they put in.
So, today I’m sharing with you my own daily preparation to help give you a framework for creating your own daily routine that will help you carve a solid pathway to trading success.
Understand, that this is a general framework for you. There is far more depth and complexity that goes into actually completing the routine.
A high percentage of the traders who sign up for our educational courses, read the blog posts and watch our YouTube videos have yet to reach the trading proficiency levels that they seek. Most are seeking outside sources that will help them advance their trading to more successful levels. I believe that this process starts from within rather than from an outside source.
Our goal is to assist you in reaching a level where you are totally in charge of your own trading. In mastering any skill-based undertaking, practice and preparation occur long before the desired goal is reached.
With that said, below is a review of my daily preparation which you can use as a guideline to begin to put together your own daily trading practice.
The first thing I do as part of my daily routine is to review the monthly, weekly and daily bar charts. When you’re very tightly focused trading a particular day, it is easy to lose perspective. Starting with the longest timeframe monthly bar helps break the very short-term perspective I may have had at the end of the day.
No matter what timeframe you are trading, markets are — most often — either trending or balancing. It is rare to see a market showing a V-shaped reversal. More commonly, you will see markets trend, balance (form a trading range), revert back to the original trend or reverse.
I review the monthly bar to determine if we are in a long-term trend or a balancing process. This is being written on March 24, 2018, following 14 months of one time-framing higher. (Note: one time-framing higher means, for example, that the current monthly low did not take out the previous monthly low, etc.) The monthly bar shows that one time-framing higher ceased in February 2018. This was followed by a very rapid 12% decline. The market has remained in this trading range for the past month.
The trading decisions you make in a trending market are quite different than the trading decisions you would make in a balancing or trading market. You may say: “But I’m a day trader, I don’t care about the monthly.” However, the short-term orientation for how you trade a trending market versus a balancing market is quite different.
I review the weekly bar with the same perspective. However, my timeframe is slightly shorter. For example, the monthly bar may show that the upward trend remains intact, while the weekly bar shows just the opposite. Pending monthly change will always be observed first through the weekly bar.
If you think of the weekly bar as representing the intermediate-term trend, you may have a long-term trend up with an intermediate-term trend down or balancing. This perspective continues to help you orient your trading. Intermediate-term trading range highs or lows often become important day timeframe references. Without this orientation you may not see a meaningful day trade developing.
The daily bar shortens your timeframe even more. For example, you may have: a long-term trend that is up, an intermediate-term trend that is balancing and a short-term trend that is down.
Following my review of the monthly, weekly, and daily bar — which has focused my perspective — I now begin to focus on my short-term trading plan for the following session.
My next step is to review Profile for the day just ended. You will find that what has happened before greatly influences the market going forward.
1. First ask: What was the market trying to do today and how successful was that attempt?
- Was value higher, lower or unchanged?
- If the market was moving directionally, was the move confirmed by volume? For example: If the market was attempting to go higher, was volume normal, higher or lower. This assessment is based on relative volume over the past several days.
- Does Profile structure support the market’s attempted direction? For example: If the market was attempting to trade higher, was the profile elongated without being overly elongated or more truncated.
- How did the market act around pre-identified references. For example: Was the market stopped by these references or did it easily trade through them?
2. My prioritized reference list is reviewed.
References that are no longer applicable are removed. References are prioritized beginning with the longest-term references down to those representing the shortest of time frames. Special attention is given to those longer timeframe references that are easily within reach for day timeframe trading. Trading is about change. The odds are that the greatest change will occur relative to these longer timeframe references.
3. Once the above review is completed, I begin to prepare scenarios for the following day. I generally develop a scenario for the following:
a. an upward market
b. an in-range day
c. a downward day
4. In our more highly connected world, change can occur overnight. About an hour before the morning opening I review the overnight activity. This review includes an assessment to determine if overnight inventory was one of the following:
5. Once overnight inventory is reviewed the earlier scenarios are updated.
6. About an hour before the opening, based on overnight price, I determine if the market will do one of the following things:
a. open within range
b. open out of range
The biggest opportunities most often occur when the market opens either out of the previous day’s range or outside of the previous day’s range with price and value quickly returning to that range.
MOST IMPORTANT CONSIDERATION
Trading success starts from within. Ask yourself: Do I prepare and review my trading plan each day? If not, begin now. Control over change starts right here.