Since I was a kid, I have been passionate about sports; baseball and golf are my favorites. I learned that devotion to practice and preparation returned rewards. Any endeavor you choose, make it your passion. A trader should embrace the same approach. Obsess to be the best. I have taken my passion and competitive nature for sports and applied it to markets. If you want to compete with professionals, practice like one.

To be competitive as a broker in the late 1980s, 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 off 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.

On the road to becoming a well-rounded broker, trader and educator, I developed a list of tasks (practices) that I use before entering or recommending a trade. My checklist:

• 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 rates is often connected to the dollar and stocks that may have an impact on metals and energies. Understanding the relationship between financial sectors is vital when creating strategy.
• Get a read on momentum from a day view
  • 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 are 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
  • If overbought/oversold think containment trade (mean reversion)
    • Better for speculators and short-term strategies
    • Short options to collect theta
  • If in a consolidation phase
    • Recent day ranges below average with decreasing volume
    • Apply breakout strategy
    • Long options
• Select support/resistance (entry/exit) areas
  • 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.)

Design Your Own Rules

Great traders follow a procedure 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 almost instinctively.

John Seguin, Market Taker Mentoring