(05/15/12) How to Prepare for Each Trading Day

Hours of research doesn't automatically represent effective preparation, explains Anne-Marie Baiynd, who reviews the components of a complete, well-designed preparation process.

We talk a lot about finding the right trades, but how do you get ready for the market open? What should you be doing to plan your day and to plan the trades you’re going to take?

My guest today is Anne-Marie Baiynd, and Anne-Marie, what should I be doing before the market opens to get ready?

I think a critical element of trading is preparation, so it should be either the night before if you’re looking for something that’s a little bit longer trending, or at least a couple of hours before if it’s intraday.

Now, there are many of us that are very good at being on the fly and getting in and doing what we need to, but a lot of us aren’t, especially if we’re novices, and we end up thinking to ourselves, “Wow, I don’t know what to do.” If you find yourself in that space, it means that your preparation has not been adequate.

Now, a lot of us do a ton of homework, so we think we are preparing, but studying the stock and looking at it and seeing what the trend is, that’s not really preparation.

Preparation is if it hits this spot, I’m going to do this if all of my parameters hold. And then if it breaks down, this is what I’m going to do so that can work, and a lot of us don’t really get to that fine execution point.

With so much to trade just in the stock market alone, how do you decide flipping through charts what stocks and price points you’re going to watch, or what you’re going to trade? Should I narrow it down to a small group so I can make this bite-sized?

That’s what I do. I look at the futures market, but I also look at Apple (AAPL), Amazon (AMZN), Baidu (BIDU), Netflix (NFLX), Google (GOOG), and you can still trade those if you don’t have large accounts, because you can use options that are very liquid and very often have very tight bid/ask increments and a lot of opportunities.

So many folks are looking for the great big explosion stock for the day that it leaves them a bit scattered. So for me, it’s always been easier to just sit with these and watch them, and when they move, I’ll get in.

How about news? Does that play in a lot right before the open and the morning of?

Oh, absolutely, because the news will make something break a level or lose a level, and how to respond after that is the most important thing. When I was a younger trader, I would jump in the direction of the candle, and many of those candles are hot or emotional, and they have a tendency to retrace.

So I would end up thinking I was going in the right direction, then have it reverse on me, get stopped out, and then it rolls around and does something else.

Definitely wait for after that news event and see if it breaks or holds a level and then move from there.

Finally, that first 30 minutes of the trading day can be pretty volatile. Should I stay away if I’m a new trader, or is that the best time to learn?

That’s a great question. It’s a great time to learn if you’re paper trading and you’re a newer trader.

If you have skill, there’s nothing wrong with stepping in just as long as you know where those parameters are. But if you are a little indecisive and a little uncertain, let those 30 minutes wash out.

Get comfortable with opportunity costs. Many of us look for that bottom or top. Give that away so that you can have a higher probability, wait for things to settle out, and then move in and leave the first 30 minutes alone.

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