Your average person gets up, makes a morning cup of coffee, pours a bowl of cereal, and makes some eggs—or some variation thereof. Depending on their routine, they will then turn on the morning news, read the newspaper, or surf the internet. Before, during or after all of this will include showering, shaving, feeding the dog, and other activities that are needed to be done on a daily basis before heading off to work, school, or even for those who stay at home during the day.
Depending on the individual, the order and type of activity will change but it is fairly common for some type of morning routine to set in for all individuals. Seldom are these developed routines conscious choices as people often simply fall into certain patterns depending on the interests, needs, strengths, and weaknesses. There is nothing inherently good or bad about routines, as they can be a wonderful addition to someone’s life or they can include negative aspects that are a continual hindrance.
Since you are likely to fall into some sort of routine, you might as well do all you can to maximize the routine you fall into. For those that trade in the financial markets a solid routine can help someone who still works full time to maximize their time spent trading. For those that trade full time a solid routine can allow more time to analyze new stocks, spend time with their family, or enjoy whatever other activities that catch their interest.
Whatever you include in your routine, the key to making it stick is repetition. Over the years I have heard many numbers thrown out to state how many days in a row you need to do something in order for it to become habit. Whether it is 15, 25, 30, or 45, there are two things for sure: first, the number of days undoubtedly varies based on the activity and individual and, second, if you do a certain activity long enough it will eventually become habit so stick with whatever routine you establish religiously.
Since a person starting a new routine is likely going to have to break an old routine, your new routine will hardly be second nature at the start. Whether you go through your financial market activities in the morning or at night, there are likely to be some old habits you will have to break in order to establish your new, more productive habits. One thing that will likely help in this transition is to write down the exact order in how you want your routine to go and then to follow it each day until it is no longer needed. This may seem very simply but it is quite easy to forget something that is not habit to us already.
The items below are just a few of the areas that you could concentrate in your financial markets routine. Some people will establish this routine at night and others in the morning depending on their other activities going on in life. Both can be successful and both can maximize their remaining time if their routine is systematically followed.
1) Market Analysis: Before we jump into the portfolio and start managing trades, making decisions, placing new trades, we need to understand what is driving the market today. In this portion of the daily routine we are going to focus on three specific things: 1) Check the News 2) Check the Economic Calendar and 3) Analyze the broad market indexes. The first part of this is very simple, read the Market Report each and every day as it will help you identify the first three steps.
Check the News: Markets move on information. Information is constantly flowing in this world we live in. If you live in America, markets are open and trading around the world while you sleep. Economic reports and policy decisions may have been released in China which in turn triggered a rally in London. By the time a trader in the U.S. gets the news and interprets it, he’ll already be seeing an impact in markets. Almost every day there are reports (The Unemployment Report, The Consumer Price Index, The Producer Price Index, and many others) that are released from government institutions and agencies that can have an impact on markets.
Can we predict the reaction the market will have? No. That’s not what you’re trying to do at this step in your day. Your sole job while reading the news is to get the information and try to process it. Try to understand it. Over time, you’ll develop a market posture, an opinion on where markets should be heading, based on the news flow and reaction markets have to it. At this stage of the game, just try to listen in. Over time, if you check the news daily, you’ll become a smarter trader, a more informed person, and you’ll have a better understanding of how the economy is part of everything. Spend five to 10 minutes, get to the core of the information, and move to the next step. There are many good news publications that are all very similar. It’s important to scan the wire to ensure that you understand what the market is focused on. Don’t spend too much time scanning the wire or checking the news as it can get very overwhelming very quickly. Simply read a few articles that are market related. If you are investing in certain companies, you should also read any news that is relevant to your investments. In the Trade Center tab at www.tackletrading.com, there’s a news section.
Check the economic calendar: There are three primary reasons the markets move. The first is behavioral analysis of the emotions of the market. Second, technical analysis of trends, patterns, and support & resistance. The third is the most important: economic analysis. We study economic analysis through the economic reporting system. Reports such as FOMC events, unemployment, manufacturing, retail, housing, consumer spending and confidence, and gross domestic product (GDP) are reports we receive almost every month. These reports drive market behavior. The trader needs to identify the report on a daily basis (sometimes there are none) and assess how the report impacted the market. This includes analyzing the /ES and /DX, which are the S&P 500 and US Dollar indexes. The first month analyzing economic reports is overwhelming and confusing. The second month gets much easier. The Market Report will identify all economic reports on a daily basis. You can also check the economic calendar here: https://tackletrading.com/trade-center/forex-calendar/
Analyze the Market Indexes: There are dozens of indices. An index is simply a basket of a certain kind of stocks that are measured as one unit. The Dow Jones Industrial Average is the accumulation of 30 of the top industrial stocks. The Standard and Poor’s 500 is simply 500 of the largest US companies measured through one chart. Locate the symbols ($INDU and $SPX for stock software users) and pull up a daily chart for each of these indices each day. What are we trying to see? In general, you’re trying to get locked into the current trend, volatility, and action in the markets. It will help you make trading decisions. Spend five to 10 minutes and move to the next step. There are many other indices. For a beginner trader, simply look at the big ones as they will give you a good read on the entire market.
- SPX or /ES – This is the major market index for the US stock market. Look at this daily to get a brief idea of what is happening in the trend, the action in the market, and so forth.
- VIX – This is a measure of implied volatility on the S & P 500. Look at this daily to help determine what strategies you’ll want to focus on. When the VIX is low, options are under priced and you should use positive volatility trades (long call, long put, calendar spread, back spread). When the VIX is at a high or a peak, use negative volatility trades (short call, short put, short strangles)
- DXY – The US dollar. You can also analyze UUP as an ETF.
- /CL – Crude oil. You can also analyze at USO as an ETF.
- /GC – Gold. You can also analyze GLD as an ETF.
2) Scan the heat map: As a trader, your time is valuable. One of the tools that we love to use is the Heat Map. Using a Heat Map will give you the ability to get a quick picture of what the market is doing – very quickly. The Heat Map measures many things, but the default measurement and primary use of the tool is to gauge the daily performance of different stocks, different sectors and the entire market.
Within the heat map, the primary setting to use is to measure the daily performance of the S&P 500. Each box in the picture represents each of the companies in the S&P 500. If the box is colored in red, the stock is down in price. If the box is colored in green, the stock is up in price. The brighter the color – both red and green – generally indicates how much the price has moved during a given day. If you see more red, the market is down. If you see more green, the market is up. If the red or green is inconsistent, then you have a mixed market, and potentially some areas of the market are up and others are down. This visual representation gives you an ability to understand price behavior very quickly. A picture is truly worth a thousand words.
Heat maps can be customized to measure all kinds of things – like weekly performance, year to date performance, fundamental data like the P/E ratio’s of different stocks and even earnings dates. Start by using the heat map to gauge the price performance of the market and then learn to use the Heat Map in other ways. If you do, it will become an invaluable tool in your daily routine.
3) Portfolio management: Every trade must have a plan. If you buy stock as a long-term investment, you may not have much daily management. You might just look at the current profit and loss in the position, make sure the trend and pattern are intact, and move on. If you are trading, buying with the intent to sell back to the market short-term, you’ll undoubtedly have more daily checklists to follow. You may need to adjust your stop loss, check the news on the company, and make your judgment call. The details of this step will be dependent on what strategies you are using. Over time, as you use other products such as options, futures, or forex, you may have individual rules set up for each product and strategy. It is important to have a design, rules, and to follow them. Each day, before you go look for that next money maker, take some time to make sure the positions you have are being traded according to your rules and money management.
- Pull the weeds first. It’s more important to get rid of the trades that aren’t working than it is to take profits on trades that are.
- Work through your positions methodically; make a decision and move on. Once you’ve made a decision for the day, stop watching that position.
- Assess your delta to ensure the portfolio is moving in the direction of your portfolio bias.
- Assess your theta to ensure that your theta target is accurate. Theta defines how much we are making or losing each day based on theta. Traders typically like to carry a positive theta ensuring positive cash flow on a monthly basis.
4) Enter new positions: Traders will base the decisions of new trades based on what their portfolio needs. If the portfolio is too bullish, they’ll look for bearish trades, while if it’s too bearish, they’ll look for neutral trades. They’ll also base this on their theta target. If the theta target is not being hit, the trader will look at strategies that add positive theta. Only after you have checked the news, read the markets, and managed your positions should you go find new trades. Researching, decision-making, and entering orders can be exciting and a lot of fun. You should approach it strategically. What has the market been doing lately? What patterns are most prevalent? What scans can you run to find candidates to trade? What do you expect in markets next? You’ll get a better feel for this as you trade, but for now, try to find new trades and enter orders frequently. You may not see anything specific in the market and thus may not make a trade every single day. On the days you see a pattern to take advantage of, though, then this step is where you go to work to find trades. One mindset that can work well is to think of researching candidates as a process of elimination. Work through the entire list and try to narrow that down to a handful that you like the best.
- Check your bullish and bearish watch lists.
- Run technical scans.
- Look at the Tackle Trading Scouting Reports.
- Check the Tackle Trading Tackle 25.
Personal study: It’s cliché, but life is definitely a journey. You’ll never know everything there is to know about markets. You’re a committed student, so always keep that in mind and approach education with passion. However, as a trader, don’t make it the first thing you do. Try to conduct your trading business (steps 1-6) before you crack your book and read up on the next set of strategies or ideas. You’ll be exposed to plenty of ideas, classes, trading strategies, and new content. Make sure that you are trading while you learn. The reason this step is last is to remind you to focus on trading first and then study after you’ve done your daily job. The skillsets you desire will come faster if you practice.
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