How to start Day Trading A Funded Account ?
Chapter 6
Day trader routine
Mistakes happen in day trading and they happen for different reasons. One of these reasons is the constant bombardment of information. It distracts us, makes us lose focus or panic, and too often makes us doubt ourselves and our trading decisions. Another common reason for mistakes is “human error”. Traders might accidentally click on the wrong button, buy instead of sell, or even add “a digit too many to their position size”, for example.
No one is perfect and in a fast and dynamic environment like that of day trading, mistakes are made and will be made… however, this is not to say that a trader cannot do anything about that. On the contrary, most mistakes can be avoided and others can be limited and controlled.
How? Well, with diligence and a solid routine, of course.
Successful traders have and rigidly follow a daily routine; a simple sequence of actions that repeats itself and that provide the trader with a pre-arranged set of choices and instructions that will significantly reduce mistakes, uncertainty and lack of concentration.
In addition to all this, a daily routine can be a great noise-canceling tool while trading.
Decisions and contingency are set in advance while the trader has a calm and objective mindset. Once the market opens, the trader already knows what stock he’s interested in and what needs to happen to trigger an “entry signal” and to decide to open a position. It won’t be emotions, noise or other people’s decisions that determine his trades; it will be his daily routine and his pre-arranged set of rules, choices and decisions.
Pre-market routine
For what we are concerned, we recommend that a trader be awake at least an hour or two before the market opens (and remember, it is important to get up in the morning and eat a proper breakfast to start the day).
For an hour and a half, before the market opens (8:00 AM EST) a trader must focus; no cell phones and no background noise. During this time, the trader should only concentrate on making his watch list.
If you are just starting out, here are a few tips on how to build a watch list:
- Look up yesterday’s watchlist to see if any of that stock still has momentum or is otherwise relevant
- Check your stock scanner and look out for stocks that have moved the most (in percentage) during pre-market.
- Go stock by stock and check if there is any interesting news that could give its price the volatility we want to see.
- Mark levels of support and resistance in addition to trend lines on a weekly/daily/hourly chart.
- Identify the stocks that seem the most obvious and the stocks that seem less obvious to trade and rank them in your watch list from highest to lowest respectively.
A trader should be able to complete this entire process by 09:00 AM EST.
We suggest you take a 30-minute break at this point as part of your daily routine. Relax, wind down, and then enter the zones you need to trade. Use the time to also think about what you expect from yourself and your trades and about what your objectives are for that day.
Make sure you keep striving for your self-improvement too; set yourself goals and work towards them. Try to be more patient with your trades, for example, if you notice that you enter trades too impulsively. Do you want to take more trade than usual? Do you want to increase the number of shares you have in a company? How are you going to go about doing that? Focus, think, decide, review and execute.
Trading Routine
The time is 09:30, the market opens and what a trader needs to do in the first five minutes is to be patient until the strong wind of the opening passes and he can understand what are the trends that it leaves behind.
Your best chances for good entries occur in the first hour and a half of market trading and momentum strategies are king here; you should focus on them.
Trade strong stocks you identified in the pre-market and combine momentum strategies, hot news and market movements.
From around 10:30/11:00 am (EST), it is recommended to trade the reversal strategy because, normally, that’s when shares start to lose momentum and start to drift back down. In addition, it is also a good time to lock in profits from your current trades by raising the stop loss to the most recent higher low.
The hour between 12.00 and 13.00 (EST) is known for being a “not-so-great time to trade”. Try to avoid any urge to do it; during this hour, volume is generally very low. Why? Well, let’s just say it’s the “financial market lunch break”.
Although the afternoon can still present a few opportunities, volume traditionally remains lower than it is in the AM hours. Even the quietest of times, however, can offer the opportunity to learn and further self-improve. Make the best of market downtime to update your journal, for example, register your latest trades and results; compare your strategy and your prediction with the recent movements of price and look out for any new pattern forming or breaking on your stock chart.
The learning process is continuous and daily preparation starts way before your first trade is open. Do not underestimate the importance of this or you might end up paying the price.
