The ability to stay focused and disciplined is one of the most important qualities of a trader. But for most novice traders, this is not easy. One way to reinforce these characteristics in yourself is to create a daily trading routine. We will discuss why it is so important that you have a trading routine and then dive into some important aspects that should be included in a trader's daily checklist.
Why do you need a trading routine?
A daily trading routine is essential for a trader to stay focused and disciplined during each trading session. The trading routine should be clearly written down in the form of a checklist to ensure that every task during the day is handled properly. This should be part of a larger trading plan that every trader should have.
A detailed daily routine gives us a repeatable market entry process. This will help us have a clear workflow that will improve efficiency and help prevent unnecessary errors. Even if you are confident in your daily trading process, it is important to actually write everything down.
This will help solidify your trading habits and encourage a more productive process that you follow throughout the day. The actual writing down of the trading routine on paper or a word document will help to minimize errors and help keep emotions in check while trading. So, as I mentioned, you should think of your routine as a daily checklist with specific tasks to complete in a specific order and at specific times throughout the day.
Many novice traders who enter the market feel they need to stay chained to their computer monitors throughout the day. And in doing so, they will be able to respond to market conditions in real time as they arise. They often bypass any planning before the trading session, believing that they will be able to react when the time is right.
While some traders have found success trading on a hunch, this is the exception rather than the rule. This means that most successful traders have a clear trading plan that defines how and when they will perform certain trading related tasks throughout the day.
In essence, your day to day trading routine should be seen as a preparatory element that you rely on to stay focused. The last thing you want when you're in the markets are unnecessary distractions. With a clear daily routine, you won't fall into the trap of distraction.
Let's now discuss some of the most important tasks that a trader should add to their day to day trading routine.
The right attitude
There are many books written on the topic of self-improvement and getting the right attitude. It has been noted that over 80% of senior executives and CEOs practice meditation in some form. Whether you meditate or not, you should at least be open to any mental activity that will improve your trading performance. And, of course, meditation falls into that category.
Incorporating meditation practice into your daily routine can help you calm your mind and reduce your overall stress levels. By consciously adding positive thoughts to your mind, you can increase your self-confidence and reduce your fear of the markets. In addition, visualizing your trading setups from start to finish and rehearsing these activities in your mind will strengthen your ability to work more calmly when you are trading the markets in real time.
Many athletes do this too. By replicating the process of executing, managing, and exiting your trades based on your trading plan, you can build a certain amount of muscle memory around the process, which will help you perform better when the right opportunity presents itself.
There are many benefits that traders can get from the daily practice of meditation. This will help you process your thoughts more clearly and help you stay calm and collected during the toughest times in the market. In addition, meditation helps reduce anxiety, which can help you overcome the fear associated with the many decisions you must make as a trader.
Meditation is also known to help our left brain. Our left hemisphere is responsible for the more abstract and creative aspects of our personality. In other words, it can improve our ability to analyze chart patterns and patterns in the market.
Check the economic calendar
One of the most important items a trader should have on their checklist is checking the economic calendar for upcoming news events and newly released reports. If you are not doing this task as part of your trading regime, then you are just trading in the dark. This is true whether you are a technical or fundamental trader. Knowing what events are scheduled on the economic calendar will give you a better idea of when to expect increased market volatility.
Knowing this information is critical to making the best trading decisions. For example, if you know that an important event, such as an NFP report, is scheduled to be released in the next few hours, you can use that information in a variety of ways. If you are planning to open a new trade, it may make sense to wait until the report is published to avoid being stopped by a possible adverse move associated with the release of the report.
Similarly, if you are currently in a position, you might consider reducing your stop size or exiting part of the position, or perhaps the entire position, to minimize your risk exposure. There are many different ways to use the economic calendar.
As technical traders, we mainly rely on price action signals to give ourselves a trading edge in the market. However, it is important to know where the pockets of high volatility lie so that we can best prepare for these events.
Right now, we do not suggest trading exclusively on news events, because this is a rather risky proposition. Instead, we can use the economic calendar to mitigate risk. In other words, we want to avoid those periods in the market when our technical adjustments are likely to be reversed by increased market volatility as a result of the recent economic report.
Analyze the current market environment
Before opening a new trade, we should take some time to analyze the current market conditions. This includes looking at the price chart of the previous day's session as well as overnight activity. You should get a good idea of whether the market is trading in a range or trending.
Once you have a good understanding of the current market environment, you can then apply the most relevant technical research to your chart, which is in line with the current state of the market. This is an important concept that all traders should understand. In other words, not all trading strategies work in all market conditions. Thus, we need to conduct a thorough analysis of the existing market activity in order to choose the best strategy to use in a particular market context.
For example, if you find that the last day's trading activity has been range bound, you can use a volatility breakout system to capture a potential price move outside of that range. On the other hand, if you find that the market is showing trending behavior, you can opt for a simple pullback strategy such as restoring the price back to the moving average line. The fact is that in the context of our daily training, we must include a task related to the study of the latest market environment.
It is also helpful to look at related markets to see how they are currently trading. Remember that markets are essentially a mechanism for the flow of capital from one asset class to another. So, by understanding and performing intermarket analysis, we can better understand the pulse of the current market.
For example, if you are trading the EURUSD currency pair, you should also take a look at the dollar index to try and get some additional market information. This is because they tend to be inversely correlated and price action within each of these instruments can provide important clues to future price direction.
Check key support and resistance levels
Support and resistance levels are one of the simplest yet most effective methods of measuring price movements. Essentially, a support level is a level at which there is a zone of demand that could lead to an increase in buying activity. At the same time, the resistance level is the level at which there is a supply zone, which is likely to lead to increased selling activity.
Every day before the start of the trading day, you should update the major and minor support and resistance levels on the price chart. The main support and resistance levels refer to the higher time frame levels, which are usually defined as 4-6 times your trading time frame. The secondary support and resistance levels refer to the levels plotted on your current trading time frame. Both are important to keep a close eye on as they can change rapidly depending on the current market environment.
As a general rule, when updating key support and resistance levels, it is best to try to keep the process as simple as possible. In other words, you can build one major support and resistance level above and below the market. In addition, you can build one minor support and resistance level above and below the market.
By doing this, you can focus on the most important levels as they relate to short and long term time frames. It often helps to mark the levels of shorter timeframes in a different color than the levels of longer timeframes.
Regardless of the methodology you use to plot key support and resistance levels, you need to build it into your daily trading routine. Over time, this process should become second nature to you. This is an important step on your daily checklist that should never be overlooked. For me, this is a top priority in my trading practice.
Manage your positions
Before opening any new positions during a trading session, you should always manage your current positions. This includes evaluating the price movement on the charts to see if you should make any adjustments such as moving stops, moving take profits, taking some profits, adding to your positions, or closing out the trade entirely. There are a number of decisions to be made regarding your current positions. This should be done for every open position you have.
In addition to this, you should also check your daily balance to make sure it meets the minimum margin requirements. It will also help you make appropriate position sizing decisions for new trades that may come up during the day.
One of the most effective position sizing models is the fractional-fixed approach. Essentially, the fractional position sizing model is calculated using a certain percentage of your total account as your maximum risk tolerance. For example, if on a given day your account balance is $10,000 and your trading plan requires 2% risk per trade, then the maximum risk allowed per trade would be $200.
Scan charts for new trading setups
Once you have completed your checklist of all the tasks mentioned above, you should now focus on scanning the charts for new potential trade setups. Unfortunately, most amateur traders tend to focus on finding new trades as their starting point. And they often do it without thinking and not taking into account the steps outlined earlier. They do it to their own detriment, and then often wonder why they see substandard results in their work.
Again, finding new trade setups is the backbone of any trading strategy, however you need to first consider all the other important aspects that have already been discussed. Thus, you will have a sufficient amount of information on which to base your trading decisions.
Assuming you have completed the checklist in your daily life and noted all the important steps leading up to scanning for new settings, you should follow a specific procedure for analyzing potential settings. This may be in the form of manually scanning dozens or perhaps hundreds of charts to identify patterns that you have pre-determined to trade.
Alternatively, you can set up a computerized scan on your trading platform to find those conditions that might trigger a potential trade. There are many different ways to approach this stage in daily trading practice. This will depend on your preferred trading style, experience and level of knowledge.
View and record your trades
One of the most overlooked tasks in the daily trading process is keeping a log of your trades. Many traders avoid this because they either don't fully understand the value of a trading journal or find it an unnecessary burdensome task.
It is often said that the only way to improve your results is to monitor and continuously improve your trading process. In the world of trading, a trading journal gives us the ability to track our trades, review them, and learn from any mistakes we made along the way.
Having said that, your trading journal doesn't have to be overly complex, and you don't need software to manage it. You can simply use a Word or Excel document to track your trades. The point is that you just need to start journaling your trades if you are not currently doing so. This will definitely help increase your trading efficiency. You will begin to see trends that will show you where your strengths are and where your weaknesses are. By highlighting the areas that cause you the most trouble, you can focus on those areas to improve your trading.
Therefore, it is important that you get into the habit of reviewing and recording your trades on a daily basis. This should be part of any day trading regimen. Once you get started, you will be amazed at how effective it is in helping you hone your trading skills.
For example, you may find that your results are better at certain times of the day, or that your strategy performs well in a certain market compared to another, or that one type of strategy works better for you than others. These are just a few examples that you can take from your trading journal.
Get ready for the next day
After the trading session has come to an end, it's time to prepare for the next day. This may include some of the tasks we have already covered. For example, you can check the economic calendar for any upcoming news events or economic releases.
In addition, you can analyze the support and resistance levels on a larger time frame and update them accordingly. Most traders will have their own routine in preparation for the next trading day.
Summing up
We have discussed some of the key aspects of the daily life of a trader. However, with some minor modifications, this can also be applied to traders in many different markets, including futures, cryptocurrencies, and stocks. Most successful traders will tell you that they have their own trading routine that they follow in order to stay focused and disciplined.
And so it is important that you create your own trading habits so that you too can focus on those tasks that are most relevant during the trading session. You must avoid unnecessary distractions that lead you to perform unproductive tasks.