Day Trading is stressful and you’ll make mistakes if you don’t get in the zone quickly.
Here’s the routine I go through every day – 3 simple steps to settle my nerves at the Open, identify the likely early trend direction and then take a small winning trade.
1. Check the timing of any important data releases
About an hour and a half before the open I go to the Bloomberg.com website. Under the Market Data pull-down menu you can see they’ve got an Economic Calendar. On the Economic Calendar what they show is, day-by-day, the various data releases that are coming out.
The good people at Bloomberg have also made it pretty easy for us as well. They’ve given us this little key at the bottom that shows a red star as a Market Moving Indicator and a yellow star here as Merit Extra Attention.
So we can go through each day and know which of these data releases are likely to cause volatility in the market. And most of the time they’re pretty right about the coloring of these important data releases.
What I’m trying to do is avoid being in the market right around that data release because there’s usually heightened volatility. I don’t want to be taken out on a stop when I’m in the market, so I’d rather be out and just watching what the reaction is in the market.
I’m not interested what the number is, or trying to anticipate whether it’s a good or a bad number and what the market is going to do when it sees a particular number. All I’m interested in is being out of the market when that data is being released so I can reduce my risk from the extra volatility that comes my way.
2. Determine the trend based on Volume Momentum
To determine the trend, the key indicator I use is Better Momentum on the 4,500 tick chart. I’m looking for exhaustion volume because exhaustion volume from the previous day will give me an indication of what the likely trend is for the next day.
If the previous day was a reversal day then we’d expect that momentum to continue during the early part of the day. A reversal day would be marked with Exhaustion patterns and testing (divergence plus “flush” patterns) then a proper change in trend.
If the previous day was just a one direction play then we’d expect the momentum to continue but the Exhaustion patterns to happen early in the current day. And then if today ended up being a reversal day, that reversal should happen before 11am (Chicago time).
The Better Momentum signals take a little bit of interpretation – they’re not just straight signals to trade off. But they give me an indication of what I think the trend might do early in the day.
3. Take a small trade by following the Professionals
Next, wait for the Open. The Open is a time when you’re most nervous. You’re waiting to put on your first trade. You’re trying to judge the trend for the day. You get quite anxious.
What I find most helpful is to have a rule that I won’t enter a trade until I’ve seen the first blue Professional bar on the 1,500 tick chart. That often gives me a nice little scalp trade, one or two points, and shows me where the Professionals start to see some value in the market.
I don’t expect it to turn into a huge winner, a big trend move, a four-plus point trade. All I’m looking for is one or two points just to put my first trade on and just to feel comfortable about the day’s activity and take a little bit of money off the table with an early trade.
And the signal for this trade is ideally going with the trend (determined in step 2) but entering on a retracement with a blue Professional bar. Then the break of the High of that Professional bar, if we’re in an uptrend, is the signal to go Long. And a break of the Low of that Professional bar, if we’re in a downtrend, is the signal to go Short.
This article should have convinced you to:
- Check the timing of any data releases. You just need to know the timing of important data releases, using the Bloomberg website. Then be out of the market during these.
- Identify the likely early trend direction. The early trend direction is usually a continuation of momentum. So check the Better Momentum signals on your 4,500 tick chart.
- Take a small winning trade. Watch for the first blue Professional bar on the 1,500 tick chart. Then trade off that with a small (Emini 2 point) profit target.