Trading the markets on a daily basis with short term strategies places a premium on efficiently and effectively developing a comprehensive daily trading plan.
Short term trading can be a very rewarding part of an overall trading and investment strategy. Without a sound and comprehensive plan, though, there are just too many ways to go astray for the novice trader.
Each trader should develop their own methods for daily preparation, suited to their style and personality. It can be a challenge though for the novice trader to get started with this daunting but essential task.
Here is a simple way that a trader might go about developing a daily trading plan, proceeding from the top down.
Prepare your notes in 3 sections: market, intermediate, tactical (short term) and go through a set of structured questions like these:
What is the market condition, what is it doing, does it give you a bias for tomorrow?
What is the intermediate condition? Consider using indicators like Williams%R, portfolio exposure, and ADX condition.
Are there any swing trades that have stories going on that carry over from the previous day?
What is the short term condition/ideas of interest? consider: gap statistics, SPY Pivot Points, any carry over positions from yesterday, any patterns fired? These could include patterns like overreaction, channelling, triple screen, 5 days down and washout.
Are there any maximum pain candidates to be aware of? Are there any continuation patterns that I am especially interested in?
Once you answer those questions, you should have anywhere from 5 to 15 tradeable ideas as soon as the market opens.
At the open you should consider the gap, then the 5 min Opening Range, examine the price with respect to the pivot point numbers.
After about 15 minutes into the session, you could look at, in order: indexes, ETF2 positions, and your developed interest list to see where the strength and weaknesses are. This quick scan will suggest more targets.
A simpler alternative is to have a narrowed focus on a stable of reliable targets, and do an abbreviated version of the above scan by considering the market and intermediate conditions but then focus on the state of each of your reliables for trading ideas.
All interest list members should be framed in the usual way, so you have a decision support framework in place before the market opens. You will then know where you can buy upon evidence of tactical momentum fearlessly.
You will also have a playbook of situational trades, just waiting for the market to show you what it is doing.
If you need some guidance on how to develop your daily short term trading plan, these ideas may help to get you started.