Trading the markets on a daily basis with short-term strategies places great importance on the efficient and effective development of a comprehensive daily trading plan.
Short-term trading can be a very rewarding part of an overall trading and investment strategy. However, without a solid and comprehensive plan, there are too many ways for the novice trader to go astray.
Each trader must develop their own daily preparation methods, suited to their style and personality. However, it can be challenging for the novice trader to get started with this daunting but essential task.
Here is a simple way a trader could develop a day trading plan, proceeding from the top down.
Prepare your notes in 3 sections: market, intermediate, tactical (short term) and analyze a set of questions structured like these:
What is the condition of the market, 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 Forex trades that have histories that carry over from the previous day?
What is the short-term condition/ideas of interest? Consider: gap stats, SPY Pivot Points, any position transfers from yesterday, any triggered patterns? These could include patterns like overreaction, channeling, triple screen, 5 days down, and washout.
Are there candidates for maximum pain to consider? Are there any continuation patterns that I’m particularly interested in?
Once you answer those questions, you should have between 5 and 15 tradable ideas as soon as the market opens.
At the open, you need to consider the gap, then the 5 min opening range, examine the price relative to the pivot point numbers.
After about a 15-minute session, you could look at, in order: indices, ETF2 holdings, and your developed interest list to see where the strengths and weaknesses lie. This quick scan will suggest more targets.
A simpler alternative is to have a narrow focus on a set of trusted targets and do a shortened version of the above scan considering the market and intermediate conditions, but then focus on the state of each of your trusted targets for trading ideas.
All members of the interest list should be framed in the usual way so that you have a decision support framework before the market opens. Then you will know where you can buy without fear in the face of tactical impulse evidence.
You’ll also have a situational trading playbook, waiting for the market to show you what it’s doing.
If you need guidance on how to develop your short-term day trading plan, these ideas can help you get started.