How to prepare for the trading day?

The preparation of the trading day is of particular importance, whereby one should not be deterred by a certain complexity. This is where we set our first course for a possible successful day trading.

We divide the preparation into two sections, whereby we speak on the one hand of “basic trading preparation” and on the other hand of “concrete day preparation”. If you get used to a certain rhythm and a constant continuity in the processing of these work steps, they interlock anyway, so that they become part of our normal daily routine and only require a manageable amount of work. What is important is continuity, that “always stay on the ball”.

Basic trade preparation explained:

“Basic trade preparation” is a broad term. This includes everything that we could call basic knowledge about the stock market. This basic knowledge is covered by general, but also regular information from news, documentaries on television, and economic and political articles in the press/internet.

If we have a broad foundation of knowledge here, which we constantly expand by reading specialist articles and other sources of information, the latest news and developments can be evaluated and classified quickly and easily.

We don’t know of any consistently good traders who have not been able to fall back on a broad knowledge of current events, we believe that one thing leads to another.

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But also the concrete trade preparation is important

1. The follow-up

Our “concrete trade preparation” basically begins the evening before in the follow-up of the trading day. This follow-up should not be underestimated in any case.

Especially the fast futures trading is based on the appropriate use of a trading rulebook but also on experience and “market feeling”. This is now quickly said, we would like to put it in concrete terms and also show how we can acquire this experience and “market feeling” in a manageable time frame through a good follow-up of the trading day.

In the run-up to the event, we have already pointed out on several occasions that, according to the rules and regulations, trading is not the “primacy”, but is actually only of a secondary nature. The primacy is the understanding of the activities of the market participants: short-term trading – when does it dominate, how does the market move in phases of its dominance, how do we recognize these players in the market?

How do we recognize arbitrage or direct final orders in the market, how can we profit from them? As these players, unfortunately, do not wave flags when they enter (or leave) the market, we have to develop a feeling for their traces in the market. It helps to do this if you print out the intraday chart of your market every day and add your comments to it afterward.

1.1 First mark all your trades in the price history and note in short notes what you have done and why.

It is especially valuable if you write down briefly how you felt the market at that moment. What did you feel about the players? How did you think their books were (long, flat, short)? It is these “side issues” that make the “feeling” important for tracking down and recognizing the players. Although the stock market moves differently every day, developmental diversity is not infinite. The longer you look at the price behavior of the market in the form of this post-processing, the more conspicuously you will notice similarities, which allows “hunches” and makes them increasingly reliable.

1.2 Mark conspicuous price segments in the intraday course, even if you did not become active there.

Write down the following in keywords: Arbitrage active here – order flow in the cash market or Short-term trading between you, no final order in the market. The sense of this measure correlates with the explanations under 1.1.

Over time, a basic understanding of what is happening in the market builds up, which can compensate for a few years of experience in trading.

2. Assessment of the general conditions of the day

The trading day begins with the assessment of the general conditions. This includes the fundamental cornerstones, practically the “general weather situation”. For example, it is interesting to clarify how possible money flows in the market, who could buy, and why, what are the central banks doing? How are the investors positioned, what are the funds and insurance companies (as final customers) currently doing?

Get an overview of possible anomalies and potential problems – this includes, for example, conspicuous open interest in the options market (you can find this on the Internet).

We recommend to use the investing economic calendar: economic calendar

Where do we get this news and information from? First of all, we would like to say in general terms: look for like-minded people with whom you can and want to work. It would be ideal if they have contacts in the professional trade (these are still the best sources) or at least know good sources of information from the Internet. Fighting alone, being on your own, will hardly bring constant success in the long run.

3. Carrying out the detailed market analysis

After setting out the framework conditions, we focus on the analysis of the market, for example. Here we first look at the main market, namely the market we are trading. Personally, we do not think much of trading many different markets. Then you trade everything a little bit, but nothing right. Go through your main market in different time frames. The weekly chart rather rarely, but daily and hourly charts regularly. Sketch scenarios for the day. What could happen, at what point are you wrong, at what point is your scenario invalid?

In addition to the main market (e.g. S&P500), the “peripheral markets” also come into play, namely those that round off the picture (e.g. bond market) or currency markets. In addition, we look at the markets that are currently “in fashion”, i.e. those that (temporarily) have a strong market presence. When we were in charge of IBEX trading at Deutsche Bank in Spain, there were a few months when Bovespa (Brazil) received a lot of attention and was regarded as the leading index. It doesn’t matter whether we think it makes sense or not – if the majority of the participant groups active in the market think it is important, we do.

What basic knowledge should we have? The basic rules of technical analysis should be right. Just because Technical Analysis has a great set of analysis rules, this approach is the only sensible approach that tells us when we have been wrong. Another important reason is the fact that the market can be very well technically traded when short term trading is dominant. In such a case, standard rules usually apply. If arbitrage or final orders come in between, you can postpone the use of technical rules.

In addition, you should have knowledge of the form, definition, and statistical hit rate of precisely definable price patterns. Please note that patterns are not all the same pattern, but their hit rate can sometimes vary considerably from value to value for the same characteristics and the same situation in the market.

What should you read to get tools and information? Personally, we prefer trade journals to textbooks, as journals are more up-to-date, more interesting, shorter, more compact and have access to a wider range of authors than books. When dealing with the press, especially to deal with political and economic aspects, we prefer press articles that are not mainstream. It is sometimes the fringe newspapers that provide different and sometimes more in-depth analyses than “New York Times” and Co.

4. Figures and data of the markets

What are the numbers today? Which data is considered important by the market? Print out the data statements every morning. Also, learn what the individual figures really reflect. Do you know what the key figures mean? Draw up a small list of scenarios every trading day, showing what could happen if the data deviates from your published estimates.

This all sounds quite extensive, but believe me: if you routinely work through these steps every trading day, your concrete trading preparation will be limited to a maximum of one hour in the morning and 30 minutes in the evening. But if we consider that this preparation can provide us with valuable points every day, you should definitely get used to this routine.

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