Saturday, January 29, 2005

Getting Prepared for the Trading Day

With the great challenge of facing the stock market each day and the hope of pulling money out of it on a regular basis, a trader can do few things more important than prepare adequately. It should be no secret that many of the brightest minds in the world are at work to make their living in the stock market, and such competition cannot be taken lightly! Furthermore, while traders should not be in the prediction business, we must certainly have a game plan.

As time progresses, a trader will inevitably learn from his mistakes. This experience is the foundation for laying out a game plan in preparation for the trading day. Merely being a student of the market and of one’s own results will teach a trader to react certain ways to market conditions or events. It is this foundation which should be built upon in order for the trader to elevate his game to the next level (and it IS a game).

In order to develop a trading plan, a trader must begin with his personal style in mind. Swing trading involves a plan that may evolve over the course of a few days to a few weeks, while day trading can be faster-paced and more spontaneous. Personality, patience, and profit objectives will play a large role in which style of trading one may wish to employ, but the trader should choose his method as he plans for success.

Once the trading style is known, the trader must take into account current market conditions. Are recent days or weeks characterized by lasting trends, or by narrow ranges and choppy action? Knowing the answer to this question will put you miles ahead of many other traders who walk in each morning without taking current conditions into consideration. The market will catch you off guard as it changes its rhythm or volatility, but recent history serves as a guide until things change. This means choppy, low-volume, range-bound markets should likely be approached with smaller positions and the expectation of taking profit more quickly and in one piece. A trending market with larger range days and greater volume allow the trader to take bigger positions in hopes of scaling out in pieces as the market moves in the trader’s profitable direction.

Whether after the market closes or early in the day prior to the market’s open, some time should be spent determining an IF/THEN strategy for the upcoming session. Some traders may subscribe to a swing trading newsletter or converse with other successful traders, while others prefer to do their own research. One excellent way to find the following day’s trading list is to screen for stocks which meet custom criteria for price, volume, volatility, etc. An affordable stock charting software program will quickly narrow a large list of stocks down to a specifically filtered handful of trading candidates. Worden Brothers, Inc.’s TCNet is one such program, and it will scan thousands of stocks in just seconds or sort them by more than 100 included criteria or unlimited custom criteria. By screening for a handful of potential trades, the decision-making process is simplified and a plan is easier to carry out.

Consider finding a list of trade candidates for both the long and short side of the market, setting specific entry and exit prices, and then simply execute that plan. IF the long candidates rise to your entry prices, THEN purchase them. IF the short candidates break the levels of support you see, THEN short-sell them. IF none of your trade candidates trigger their entry prices, THEN do nothing! This kind of game plan will allow you to effectively respond to market conditions without having to predict direction or hope to be bailed out of losing positions. Approaching the market with the IF/THEN mentality also will help the trader to execute a plan, rather than fight the emotional urges to find excitement or force trades. Sometimes things will work exactly as planned and other times the market will whipsaw you right out of positions. Meeting the market with a game plan and sticking with it will undoubtedly allow the trader to work with less stress and emotion, which are two of the worst negative forces that traders face.

Feeling well physically is a very important trait which must be present for a trader to profit. Staying healthy and rested allows the trader to work with a clear mind and focus on the task at hand. Additionally, personal relationships can play a large role in a trader’s effectiveness. When life is rocky away from the trading screens, the successful trader must be willing to cut back on trading size or even back away from the market entirely. A prideful ego will not only cause rough waters on the home front with relationships, but it will also damage the trading account! A clear conscience allows quality rest and a fresh start each morning for returning to the market sharp and ready. Make the most of your weekends to catch up on personal to-do’s and relaxation. When Monday arrives, if you aren’t at your best, don’t expect your trading to be!

Finally, as the morning breaks and the market’s opening nears, follow a routine to get into the proper state of mind for following your plan. This may include reading up on current events, reviewing your charts one final time, grabbing your morning caffeine, or listening to your favorite song. Whatever it is, find what works for you when it comes to getting into the best mindset to extract profits from the market. Remember, the competition is serious and fierce, sharp-minded, and most of all, prepared. You should be too!

The Stock Bandit


Anonymous Anonymous said...

I find the site fantastic. You come across as young and fresh and ready to take on the world as opposed to some of the more established newsletter sites where they make v little effort. Also appreciate your constant efforts to improve the site -- such as this blog. Keep up the great work young man. (i am assuming you are a young man... can't imagine you as a retired person....)

2:52 PM  
Blogger AvidVines said...

Nice article - I also enjoyed your article on the website regarding your strategy:

I'm sure you'll agree a trader's plan is half the battle. I think the right tools are a good part of the other half. Your personal strategy is well defined and thought out making it valuable to anyone trading with less or in need of more training. In recent years breakthroughs in information technology have made it easier for financial services firms to provide customers direct access to the markets. Traders are able to view streaming quotes, charts, and place trades all through the same platform. The one drawback is that now there is so much data in front of customers that it has become difficult to make decisions. This makes a trading plan and the right technology critical when considering the following:

• How does one know which stock to look at and at what time?
• How much research has to be done ahead of time to prepare for a day of trading?
• How many analysts are there doing the same thing for institutional firms?
• How can an individual really compete with large hedge funds that pay thousands of dollars for research?

8:44 PM  
Anonymous Anonymous said...

dear the stock bandit,
I am overwhelmed right now with gratitude and excitement because I have just stumbled upon your website. I have been looking for the information that you have provided for a year! You have made such a difference in my life! Thank you so much for being generous enough to put forth your time and energy for the benefit of others, and to share your hard-earned knowledge! It's inspirational, and that is not an exaggeration.

3:44 PM  

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