Trading in the stock market today can be a daunting task for even the most informed investor or trader. In my opinion the best approach is to use a combination of both fundamental and technical analysis to catch the most advantageous moves in the market. Below we lay out an evergreen routine that can be used to evaluate the stock market today and everyday.
Prior to the market open you should spend a couple of hours:
- getting a feel for the market overview,
- setting up potential trades,
- creating a watch list and
- reviewing your current positions.
Look over a few financial websites such as Yahoo and Bloomberg or watch CNBC to get a feel for the big news stories of the day. You want to have a general idea on the market sentiment, key economic reports, political hot buttons and any international currency news or overseas trading events. Make sure you look at the major indexes such as the S&P 500, NASDAQ and DOW. Also check out the sectors that are bullish and bearish and make not of the trends. Finally you want to make sure none of your current holdings are subject to news, earnings, SEC filings etc.
News related trading opportunities can be useful for mid time-frame swing trades. This includes IPO’s, buyouts, bankruptcies, acquisitions and mergers or any other SEC filing. Another trading opportunity can be from sector plays by evaluating hot stocks in a hot sector or weak stocks in a weak sector. My favorite technique is to use technical analysis. I use this to identify key support and resistance levels, pattern analysis with breakout or breakdown opportunities using Elliot Waves, Fibonacci and/or Gann levels to help signify a trigger opportunities.
After identifying a fundamental trading opportunity that has the potential to create a technical trigger a watch list needs to be created. Some traders use whiteboards, notepads or their trading charts/platforms to keep track of the hot stocks or indexes for the day. The key is to have a short list that can be on deck for review throughout the day to make quick work of potential buying and selling opportunities as the situation arises.
Check Current Positions
The last thing you should do prior to the market open is to check in on any of your current holdings. You want to make sure that there has not been any overnight news or change to the fundamental position of the company or index. Next you will need to take a look at the chart. Take note of any key patterns or potential testing points that would require you to adjust your stop loss or take profits.
The Trading Day
While the market is open you need to be watching the market and entering trades according to your trading plan. Every trader should have a specific plan on how they enter, exit and manage any trade they are in. Typically after a trade is entered, the trader will send an exit and stop loss order a predetermined levels to reduce risk associated with the trade. I prefer to use key Fibonacci levels combined with Symmetry to best manage ideal exit points while in a trade. While entries can have a bit of style associated with them the exit should be nearly 100% technique.
After the trading day is done you need to spend some time evaluating your performance. Do not plan on trading after the regular session close. This is because the market becomes illiquid and spreads often increase. Make sure to keep a journal of your trades for education and financial reporting purposes. Finally look over your current open positions and evaluate them from an end of day perspective.
Having a daily routine will increase your probability of success. Just as a successful business owner operates under a business plan a successful trader should operate under a trading plan. The more routine your day becomes the less likely you are to make mistakes and errors during the trading day. Although uncertainty is a part of stock market today, you can take several steps to help avoid the obvious pitfalls.