At a recent conference, I had the happen sit down with a few traders to discuss our daily trading habits. One of these traders occurred to be John Paul from Day Trade to Win. Although I had never met these traders before this particular tradeshow, it was surprising that we followed similar routines before, during and after market. Even more surprising, not ane of us could point to a source that provided us with the “three things every trader should know.” We appear to have simply developed these habits by calculated out what was successful in our daily routines.
This list consists of three things we wish we would have been taught at the start of our day trading careers instead of learning them much later. Feel free to put the following tips into practice every day, in all markets you trade.
1. Frequently check the Bloomberg Economic Calendar (http://www.bloomberg.com/markets/economic-calendar/) for news events that will affect the markets you trade. Bloomberg has done an excellent job in neatly summarizing each economic report that is expected to cause waves in the financial world. For example, today’s listings include Consumer Price Index, Jobless Claims, Industrial Production, 3-Month Bill Announcement and much more. It’s worth pointing out that Bloomberg lists both public and private sector events. Expect to see public / government events listed far into the future whereas private announcements crop up with no more than a week’s notice on occasion. The events you need to watch out for are indicated with a red star as “Market Moving.” Why is it important to pay attention to news events? Headlines can cause major, unexpected moves that will leave you wondering what happened on the losing end of a trade. These periods of high volatility only last a few bars (a half-hour usually at most). Before entering a trade again, it is best to wait until volatility returns to a normal level. Trading should be both safe and consistent.
2. Know when to roll over to a new contract in your day trading software. While this example mainly applies to CME traders (E-Mini S&P and related markets), other currencies commodities and even stocks adhere to some type of annual calendar. An early roll over ensures that you’re not left behind trading a market that is barely moving (low volatility). For the CME’s financials, currencies and indices, contracts are rolled over on the second Thursday of the following months: March, June, September and December. Most day trading software such as NinjaTrader, TradeStation and eSignal will automatically warn you of impending rollovers (or on the day of contract expiration). If you are suspicious that a market is performing under par, you can check its volume using a plain old volume indicator. If you compare the volume between two contracts, you can easily see what everyone is trading. Why is it important to roll over your contracts? Traders should trade the contract with the highest volume and liquidity. An excellent video on this subject is available at the Day Trade to Win blog: http://daytradetowin.com/blog/2011/03/10/how-to-roll-over-futures-contract-today-is-the-day/
3. Trade based on price action and not what the news anchors are saying. Referring back to the first tip in this article, it’s easy to see how planned news events tinning adversely affect a market’s price action. Traders must also take into account unexpected news, both national and international. So far, 2011 has been an extremely turbulent year, with the recent earthquake / tsunami in Japan and uprisings / political reform in the Middle East. It comes to no surprise that during news reports related to major events, listeners / viewers are also told about each event’s economic impacts. News agencies are keenly aware that audiences desired to know how economies are influencing one another during turbulent times. Some traders take this information and apply it directly to how they are trade. If the news is bad; some traders will foolishly go short in the market. Likewise, good news will prompt some traders to go hankering, despite what is indicated by anterior price action. This directly-effectuate news trading style is worsened by many of today’s news organizations tarnishing the facts with opinion, thereby misshaping information to benefit a specific agenda. Not only does a trader have to consider accuracy and the source of the information, timeliness also becomes a factor. Because of all these variables, trading based on unpredictable news events should be largely avoided. Stay with what works – trade based on what is seen directly in front of you; the bars, candles, the determining action. Charts with a fast data stream are your best friend. If you want to learn more about how to use price action to trade and ignore the false signals, the best place to learn is at DayTradeToWin.com.