Pro Traders Commit to Routines

I have always been passionate about sports; baseball was my favorite. Now in my 60s my abilities limit me to playing golf, not running down fly balls. One thing has never changed, however. I love to practice and hone my craft no matter which sport or project I am working on. My desire to be the best motivated me to develop routines. These days I apply passion and competitive nature to trading markets. If you want to compete with pro traders practice like one. Practice builds instinct.

To be competitive as a broker in the late ’80s, I had to adapt to different conditions and client requests. It forced me to develop strategies for equities, treasuries, precious metals, energies, currencies and even grains. I started my analytic career as a technician and soon realized that a fundamental view of the markets was just as, if not more, important than charting techniques.

The road to becoming a well-rounded broker/trader/educator incited me to develop a routine that I employ before entering trades. My routine:

  • Weekend preview event risk (fundamentals) for the coming week
    • Economic releases, supply and demand reports, Fed policy, global events, earnings
    • Prioritize events that will affect interest rates
      • Movement in interest rates frequently affects currencies, which have an impact on precious metals, equities and energy. Understanding the relationship between financial sectors is vital when creating strategy.
      • Current tendencies…treasuries and equities have been moving in tandem given the high inflationary environment. The dollar tends to rally when interest rates are rising. Oil prices are sensitive to the current conflict in the Middle East and the Russia-Ukraine war. Metals have been strong as investors tend to flock to safe havens during tumultuous times.
  • Determine if bulls or bears control near-term momentum
    • Day direction indicators
      • 30-minute chart to check first hour high or low during regular trading hours
        • If low made in first hour, bulls are in control
        • If high made in first hour, bears ae in control
        • Extension higher after first hour high often leads to higher prices the next day
        • Extension lower after first hour frequently leads to lower prices the next day
        • Close in the upper quadrant of the day range often leads to higher prices the next session
        • Close in the lower quadrant of the day range low often leads to lower prices the next session
  • Gauge the speed of the recent move. I use ATRs to determine if markets have moved too far, too fast.
    • If overbought/oversold think containment trade (mean reversion) for a consolidation phase
      • Better for speculators and short-term strategies
      • Short options to collect theta
    • After a period of consolidation (flag or pennant formation)
      • Day ranges below average with decreasing volume
      • Apply breakout strategy
      • Long options should pay if a breakout is imminent
  • Select support/resistance areas (entry/exit)
    • Markets often reverse when retesting very high-volume zones (congestion areas)
    • Old highs and lows often get reversals when first tested
    • Prices where a fundamental event occurred tend to incite reversals when retested
  • Set risk
    • Risk is an unexpected change in momentum
      • If bullish define price where buyers gained control, set stop loss just below it
      • If bearish define price where sellers took over, set stop loss just above it
  • Project profit using ATR
    • Find the point where bulls/bears gained control of momentum and use the average range to measure profit potential for chosen time frame (day, week, etc.)

Great traders create a routine and apply it to every trade. Overthinking can hinder opportunity, especially when volatility is high. Design your own set of rules and practice them often. Eventually, you will react to market conditions instinctively.

John Seguin, Market Taker Mentoring

Trader Education