Contents
- What Does A Good Trading Plan Consist Of?
- Examples
- Preparing For The Next Trading Session
- Premarket Analysis
- Checklist For Entering A Trade
- Monitoring Existing Trades
- Updating Spreadsheets And Logs
- Post-Market Analysis
- Weekend Analysis
- Summary
You might ask why we need a trading routine.
A well-defined trading routine helps traders to be consistent, disciplined, and methodical in their approach to the market.
This helps traders to stay focused, avoid impulsive decisions, and reduce the impact of emotions on their trading.
A trading routine can help traders approach the market in a more organized and structured way, leading to better decision-making and, ultimately, to more profitable trades.
Plus, this helps reduce stress. An unorganized mind is a stressful mind.
What Does A Good Trading Plan Consist Of?
A good trading routine should consist of,
- Preparing for the next trading session
- Checklist for initiating a trade
- Monitoring existing trades
- Updating spreadsheets and logs
- Post-market analysis
- Weekend analysis
Think of these items as steps in a loop.
You start off the day by preparing for the trading session and end with post-market analysis. Then you loop back to preparing for the next trading session.
As such, the steps “preparing for the next trading session” and “post-market analysis” can be combined.
This activity is often performed when the markets are closed, and the prices are not moving all over the place — a time when a trader has time to think and reflect.
Examples
Your trading routine is personal to you.
No two traders will have the same exact trading routine.
If you are first trying to develop your trading routine, I understand you need some examples.
Here are some:
Preparing For The Next Trading Session
You can do this before the market opens, or it can be done the evening before.
When the market opens, and the price of assets are moving fast, you are not going to have time to decide what to do with each of your trades if the market goes up or down — especially if you have a lot of active trades.
Even if you have time to decide, it often will result in emotional decisions because the big red candle does look very scary in real-time.
You need to know beforehand which of your trades are in trouble, which ones are ripe for taking profits, etc.
A trader’s routine may be to highlight a list of trades needing attention in their spreadsheet. Decide what to do with the trade if the market goes up.
Write this down in the spreadsheet.
Decide what to do with the trade if the market goes down.
Note that down.
For options traders, note adjustment points for each trade.
This way, you can check your phone on the asset price to see if they need adjusting.
Directional traders may draw support/resistance levels and trendlines. Note down which trades are approaching those levels.
Now when the market opens, traders can just scan down their list. Oh, the market is up today, so I need to execute this action on this trade, etc.
You see, before the market opened, the planning was already done. A lot of elite athletes say the game is won and lost on the training track, not on game day. When the market opens, we are only executing our plan. We won’t forget our plan because we wrote it down.
Premarket Analysis
Even before the market opens, some traders like to get a sense of whether it is going to open up or down. They may look at the Futures market. They may look at the overnight session activity. Check volume profiles. And so on.
They may look at the VIX level. On some charting systems (TradingView, for example), they can already see the VIX level prior to the equities market opening. If VIX is up, there is a likelihood of the market opening down. And vice versa.
They may also look at vixcentral.com to check if the market is in contango or backwardation, the latter being a warning sign to watch out for.
These are just examples. If you have a set of things you usually check before the market opens, write them down as part of your trading routine.
That way, you will be sure to check each item every single day. If not, it is likely that someday you might forget to check the VWAP level, for example, and that is that day that the trade goes against you.
Checklist For Entering A Trade
When entering a new trade, the most important thing to check is to see if the trade meets the entry criteria as set out by the trading plan. You don’t want to place ad-hoc trades just because you saw a good post in a forum or if a stock price movement looks really good today.
Some traders will like to journal their trades, noting the reason to justify the trade.
Consider the mental state before placing a trade. Am I overtrading? Am I revenge-trading? Or am I putting on a trade because I’m bored? Is either greed or fear driving my actions and decisions? Or is the trade placed because of a valid buy signal from the trading strategy? Those are two very different reasons for placing a trade.
Is this trade within my risk management parameters? For example, does it have the required risk-to-reward ratio that my trading plan specifies?
Do I have enough buying power to accommodate the margin required for this trade?
Do I have too large of a position in one particular stock?
And so on.
Monitoring Existing Trades
As the trading day progresses and prices start to move, we need to monitor our trades.
Day traders may look at market internals like the ticks and the advance/decline line to see if that gives them clues as to where the market is heading.
Zero-DTE options traders may monitor their P&L to see if it has reached stop loss or take profit amounts.
For longer-term options traders, they may check the price position on the risk graph (or payoff diagram).
Positive-theta traders may monitor their delta, theta, and vega to see if they are within expected ranges and to make adjustments if they are not.
Updating Spreadsheets And Logs
As trades are open and closed, or when adjustments are made to options positions, the traders will update their spreadsheet and/or their trade logs.
For equities traders, their trading platform keeps track of their P&L., But for options traders that make adjustments, they may need to track the cost of each adjustment to get a proper P&L for the trade.
Post-Market Analysis
Whew. The closing bell just rang. Time to take a break from the computer. But don’t forget to come back for the post-market analysis.
This may include things like:
- Did a new chart pattern emerge from today’s price action?
- Was today a “Doji” day or a trending big candle day? Perhaps it was an inside day?
- Did today complete the piercing candlestick pattern? Or did it just form a bearish engulfing pattern?
- Did the price break out of consolidation? Break the Kumo cloud? Hitting top of Bollinger Band?
- What about the ATR? Are candles getting bigger or smaller?
- Is today’s market action consistent with the longer-term trend? Or did it break a trendline?
- Is the price at any support or resistance level?
If you had a losing trade today, analyze to see why it lost. Were the trading rules followed? Was the trade monitored closely enough? Or was everything done correctly?
Remember, trades can lose for no fault of our own. Those are fine.
We want to find the trades we lost because we made a mistake, and we want to learn from that mistake.
As the well-known Oliver Velez trader said:
“Inside every losing trade resides a future winning trade. … It is not that losses will ever go away. It is the stupid losses that go away.” source: YouTube
If you use indicators, this is when you can see:
- Is there a MACD crossover?
- Is the PSAR giving a buy or sell signal?
- Is the price coming out of overbought or oversold conditions in the RSI?
- Did the price break out of Keltner channels?
- Are the moving averages stacked?
And so on,
I can list dozen of these, but you will know better which ones are relevant to your particular trading strategy.
These are just examples of some things to ask in this analysis. The answers to those questions will inform our decision as to what to do next on the following trading day. Hence, the post-market analysis and the premarket planning can be lumped together.
Weekend Analysis
The weekend is the time when many people get away from the office.
A surprising number of professional traders work on the weekends.
This is when they plan out their strategy for the upcoming trading week.
Traders may scan hundreds of symbols, looking for chart patterns that match their strategy and trigger conditions.
This is when they check for upcoming events that may affect price movements.
These can include whether any of the stocks or options you are having has an earnings announcement in the upcoming week.
It includes any potential FOMC meeting or CPI numbers coming out that may affect the market.
The weekend is when the candle on the weekly chart completes.
Now they can see if the week was a bottoming tail pin bar candle or whether the price hit any weekly support or resistance level.
They also re-evaluate the longer-term trend. And so on.
The two days of market closure provide the trader with downtime to review their spreadsheet/logs to see if they match your broker records to ensure that they didn’t miss an update or make a calculation mistake.
After all, it is only human to make mistakes.
If a mistake is not caught and we base our decisions on incorrect information, it can surely mess up the trade.
Have you ever seen an options trader have so many different calls and puts at different strikes at various expirations for various condors, butterflies, and calendars, that he lost track of which strikes are for which strategy?
I saw it, and it was me. By going back through the broker logs, I was able to get my spreadsheet back in order, and the weekend was the time that I could do it.
Summary
We now can see the importance of consistency and discipline in following the trading routine.
However, it is not set in stone. It is an evolving piece of work.
Don’t be afraid to change your trading routine as you see fit as you evolve as a trader.
We hope you enjoyed this article on developing a trading routine.
If you have any questions, please send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
