I enjoy your articles and hope you can help me. I am not a newbie trader, and I have been doing okay for the last three years. I have friends who tell me they spend more than two hours each morning before the market opens getting ready for the session. I daytrade some and swing trade some, and I spend time on research. Mostly I look at fundamentals and technicals, and seek breakouts and other anomalies. I rarely spend more than two hours per week at this. Is there something I’m missing? What do your traders spend their prep time doing? Any help would be appreciated. — evolution4
Thanks, and please keep reading Stocks & Commodities. I have to say that S&C is one of the longest-running, solid trading resources available. Yes, I’m a bit biased, but I respect what they do here.
Now, let’s talk about preparation for trading. Let’s start with a “macro level” — global economics, US economics, and the relationship with our friends in the European Union. Regardless of what instrument(s) you may be trading, you must keep up with global situations, from oil reserves to US dollar valuations. Traders must understand the fiat money concerns. Without a gold standard, we have to keep up with all the interrelationships between the major currencies. This is not just for forex traders; this is for everyone. Will the major oil producing countries stop accepting the US dollar? Some have, others may. This is not politics, it is economics. Your particular trading instrument is affected on a daily basis, much like the price of oil affects oil futures, oil drilling stocks, major equipment manufacturers, and even local profit & loss of such places as 7-Eleven convenience stores. Think about that domino effect.
Next, let’s pick a couple of specific instruments and address daily preparation. Let’s assume you have read The Economist or something similar to keep up with the global condition. If you’re trading stocks, which we at Bright Trading focus on, or futures, I can offer you a premarket checklist. You may want to check out www.premarketinfo.com (a site run by Dennis Dick and Joel Elconin, who are among other things a CFA, an industry lobbyist, a CNBC guest, and a Bright Trader, for full disclosure). This is helpful, and we read and listen daily.
Here is a premarket checklist for you to keep; I edited the intracompany info. This addresses the opening-only play, as described several times in S&C. You can search for more info, for stocks, and for basic daily ranges for futures. All this is needed before planning your entry and exit points.
- Review news articles via Yahoo or other sources on your stocks and their sector.
- For your core stocks, be sure to read everything pertinent before the market opens. I suggest you have some sort of alert set to tell you when midday news comes out. Briefing and other services provide this.
- Make sure you have Reuters, Dow Jones, or a similar service set up for news about upgrades/downgrades, earnings and economic announcements. Don’t be blindsided.
- Check your pivot points on futures, use eminis or the big contract. You can find this at www.stocktrading.com/Tradinginfo.htm or www.mypivots.com.
- Check overnight and premarket activity. Adjust only if actually trading at significantly different prices.
- Listen to premarket info (or other morning call) for daily information.
- Check for earnings announcements — very important. Yes, I posted this twice!
- Determine where you think the market will open.
- Find the fair value number. Use this by taking the SPX (spot price) minus FV to determine where the futures should be trading all day long. If they are trading higher, then expect an immediate upward move in the underlying stocks, and vice versa if trading lower, of course.
- Put FV number on opening spreadsheet — remove any extra “news”-type stocks. This is for the opening-only play, of course.
- Determine envelope for the morning. This will range from 0.5% to 1.5% based on where the market is opening. The further away from FV, the smaller the envelope.
- Use your opening Redi (or other platform) symbol list that is linked to level 2 to see if you have bids or offers too far away from premarket trading prices. You can also link a spreadsheet to show premarket trading levels.
- Adjust prices as needed, or cancel.
- Either cancel everything and resubmit, or leave in orders with adjusted prices.
If you or your trader friends would like more specific preparation information, please email me at firstname.lastname@example.org. Good trading!