Each day a trader should go through a simple process to ensure that they are prepared for the markets, both mentally and professionally.
Below is a breakdown of the typical daily routine of a professional trader:
- Do not trade if you have not had enough sleep!
- Do not trade if you are stressed or worried about anything!
- Be selective, cut your losses, and let your profits run!
- Market Analysis & Preparation
- Review your previous day trades
- Identify today’s events calendar (Economic Data, Speakers, Central Banks etc). Also review yesterday’s events calendar and consider the event risk scheduled for later in the week
- Review the Asian session (if you are based in Europe) and the Asian and European sessions (if you are based in America)
- Update any political events globally that will impact on asset prices
Update your charts across all assets and use these in addition to the fundamental themes in the markets to formulate your daily strategies for the various assets that you are trading
- Set support & resistance lines: Key price levels, pivot points, Fibonacci
- Momentum: RSI, MACD, Stochastic
- Volatility: ATR, Bollinger Bands
- Participation: Volume
- Trends: Channels, Flags, Pennants, Trend lines, Moving Averages
- Sentiment: Where did the market close yesterday? At the highs/lows/mid-range?
Day Trading Rules
- Remain positive
- Look to run winning trades and cut losing trades. A decent ratio would be 2:1. So essentially your profit target should be 2* your stop loss minimum
- Evaluate your trading statistics
- Never average into a losing trade
- Avoid trading the first 15 minutes of the us cash open 2.30pm-2.45pm GMT
- Avoid have a trade on during the us cash open 2.30pm GMT
- Never reverse position … so never cut a long and immediately go short. this is a recipe for massive losses over time
- Do not commit more than 5% of your capital to any one trade. Use Money management tools that will help you to manage your finances properly!
- If you are tired stop trading
Note that the most volatile times of the day are as follows:
European Open: 8am-10.30am GMT
US Cash Open: 2.30pm-4.30pm GMT
These are the periods where the markets tend to move the most and therefore present most trading opportunities from a technical perspective. Beyond this it is a case of focusing in on event risk such as economic data, central bank situations, political scenarios and general real-time news flows.
- Forecast potential volatility for the day across various assets. Identify those where trading opportunities may exist
- Decide on your directional bias for the trading day. Let’s take the S&P 500. Do you think the index will rise or fall today based on your overall analysis? If you think the market will go up your directional bias for the trading day is long. Clearly if you feel the market will go down your bias is a short entry.
- Analyse the charts on the assets being traded to determine entry and exit points. A common approach would be to determine the following (using support & resistance levels, pivot points, Fibonacci, ATR)
- Entry Level
- Stop Loss
- Profit Target 1
- Profit Target 2
- Place your orders
Sit back and run the trade if it materialises
Never alter the strategy mid trade unless something massively fundamental comes down the news wires. Allow the trade to run mechanically even if you end up stopped out. Never watch the charts or your ladder and allow the movement of these to trigger adjustments to the original strategy.
Let technology – through automated trading – to assist you!
Initially the best practice would be to simulate your strategies to gauge performance. Once a strategy has been positive P&L wise for at least 6 straight months it can be implemented with real funds. By the same approach, a review should be made if you sustain losses on consecutive months. Three consecutive months of losses is a very decent gauge of when to review and adjust.
In general, day trading is not an easy art to master. It requires experience, skill, discipline and humility to be successful over the longer term.
However, following the correct rules can be the major factor determining long term success.