There are 252 days in the trading year.
Some of those days will feel like the greatest ever…
…while others will be filled with regret.
You see, the moment you stop taking this game seriously…
…and start believing you’ve got this all figured out…
…is the day you become overconfident and allow mistakes to happen.
And in this game…mistakes are measured in dollar terms.
Make enough mistakes (or just a big one) and you’re done for good.
Why am I bringing this up?
Because it’s Friday, and it’s easy to put your guard down when we’re heading into the weekend.
That’s why I want to make sure you stay sharp.
Most importantly, I want to share with you some of my best practices for maintaining focus, and getting maximum results during the trading day.
And while it might sound like a grind to some…it’s well worth it when the money starts rolling in.
The Warm-Up Drills
Every trader needs to have a way to start their day in a way that works for them.
For some, that’s reading the news with a coffee or maybe for others it’s taking an early morning jog with dew on the ground as the sun rises.
And no matter what they choose to do, the idea is still the same.
They have a way to get warmed up for the day ahead.
And without this warm up, chances are they won’t have the best day at the office!
Think about how it feels to get to the office after rushing out of the house after you overslept. Chances are you might not have taken a relaxing hot shower, skipped breakfast, and spilled coffee on the drive in.
Nothing seems to go right and things just seem to always happen on these kinds of days.
So… why are you inviting this chaos into your trading by waking up right as the bell rings?
Which means your warm up drills need to fit your routine and your style of trading.
Some warm up exercises include :
- Self-awareness activities
- Flexibility activities
- Aggressiveness activities
Just like the baseball pros, no serious trader would ever trade without warming up first!
Your trading warm up should put you in the mental, physical, and emotional state you should be in to do your best trading.
Unfortunately, well over 75% of all trading problems occur simply because warm ups were skipped.
Self awareness comes in many forms such as; meditation, visual and mental exercises, and stretching.
This allows you to enter a state where you can remain calm, focused and in a state of self-awareness longer.
Also by warming yourself up, it will make it more difficult to fall back into frustration causing you to over trade and become revengeful against the markets.
How do I do visual and mental exercises?
I believe that reviewing a trading journal is one of the most important aspects to a professional trader.
Without a trading journal a trader will never realise their mistakes and will not overcome any bad trading behaviors they may have picked up.
By reviewing a trading journal, you can read old notes and mentally rehearse goals and how to pursue them
Flexibility is not a yoga exercise that you might have been thinking about.
Insead, I love to mentally reverse different market outcomes as the open gets closer.
I like to play a game of this or that and work out scenarios in my head.
Two questions I like to ask myself is:
- What if this happens and we go higher?
- What if that happens and we trade lower?
Now I’m not talking about getting angry in front of a mirror while you blast Rocky and motivational speeches.
Many times the difference between a decent trading day and a great one comes down to the ability to know when you need to become aggressive with a trade or be less aggressive.
This ability to take on enough risk when solid opportunities are present is key to huge profits and maximizing your profit potential.
But what I mean is having a good physical fitness routine in the morning that pumps you up for the day ahead.
This could mean taking a couple mile walk, a quick jog around the park, or even a class for your at-home gym.
Whatever the case may be, you are not only getting your body in shape, but also your mind.
This means you are ready to take on the trading day ahead of you with a strong mental focus and ability to trade when the pressure is high.
Pumping up with active physical exercises while mentally rehearsing aggressive trading tactics in the right situations allows you to become more confident in your trading abilities and priming yourself up to taking a good amount of risk when needed.
Now I know I mentioned a lot of different ways to get into the zone while trading, but it’s usually helpful to have examples you can look at.
I highlighted some example trades where you can use different techniques to limit your risk and properly manage your trades.
These three exit techniques are identifying pivots, reading Fibonacci levels, and using VWAP as an exit strategy.
What Is A Stop-Loss
As an active trader it is crucial to understand why and how stop-losses are used to protect your trading account.
First, what exactly is a stop-loss?
A stop-loss is simply an order that closes out your position at a specific price. These orders typically control your risk by limiting your loss to the price set.
For example, if you buy a stock at $20 and place your stop-loss order at $18.00, your stop-loss order will be executed when the price reaches $18.00, preventing further losses in the event the market heads lower. And if the price of the stock never drops down to $18.00, your stop-loss won’t get triggered, keeping you in your trade.
Pro Tip: It’s important to make sure that you set all stop-loss orders to limit orders and not market orders.
Next…let’s take a look at where to place your stop-loss orders.
Where To Place A Stop-Loss Order
Similar to buying a stock, a stop-loss order on a long or short position should not be placed at random levels. There is an art of giving the market that wiggle room to move around freely, while still protecting your account from major losses.
With buying stock, a common stop-loss order falls just below the swing low price. A swing low is created when a stock is rising and falling, and a swing low finds support at a price level in line with other swing points.
As a momentum trader, you want to make sure that you are trading in the direction of the trend. This trend will be identified by higher lower swings being made.
Let’s take a look at an example of this trade.
Assuming a trade was taken on the open of the day, you can see the stock ran higher. Right after it made its first pullback and found a place to bounce, that area is called a “pivot”.
If you were trying to capture a larger move, ideal places to put your stop to allow a stock to run higher is right below each of the pivot lows.
It’s important to notice that when the market faded around 10:45 am to 11:45am, it never made it back down to the prior pivot low. This meant that you gave your trade enough room to continue to trade higher.
But what if you wanted to keep the trade on a tighter leash?
Let’s take a look at how you could adjust your pivots to let you keep higher profits in the trade.
Note: Having a tighter stop means you risk clipping your winners from running too early. It’s a balance of just the right amount of risk management to keep profits and also let you capture enough profits.
It’s all about the balance between risk and reward
Not into pivot levels?
Let’s take a look at alternative places for a stop-loss order to be placed.
Alternative Points For a Stop-Loss
Swing points not your style?
The great thing about trading is that everyone has their own strategy and not any single one is better than the other.
Depending on your entry price and strategy, you might want to place your stop loss at an alternative spot on the chart.
There are plenty of other ways to handle stop losses on your trade that are more calculated compared with a pivot low.
As a technical trader, there are many indicators that can be used as a stop-loss level. If an indicator provides a buy signal, you can use that same indicator to provide an exit level.
If you wanted to combine indicators and have one for entry signals and one for exit signals, you can do that too!
Another great indicator to use for stop levels are Fibonacci Retracement levels.
Using Fibonacci Retracements As Stop Levels
When using Fibonacci as a stop-loss level, there is not a standard at which you have to follow. This method is one of the more subjective stop-loss levels since it requires every trader to have their own unique viewpoint.
As you can see the price moves higher, you would then determine the size of the pullback you are willing to accept and place your stop-loss exit that correlates to nearby fibonacci levels.
In this example, to keep the most amount of profits we chose to use the 78.6% retracement for the stock.
Setting the exit at the next Fibonacci retracement is the most restrictive exit you can place, and should only be done if you are really confident that the support and resistance area will hold.
Using VWAP As a Stop-Loss
Using the Volume Weighted Average Price(VWAP) when trading in shorter term markets and day trading is a very effective strategy.
First, why is VWAP important?
There are many reasons why VWAP matters for a trader to at least have reference to. Here are some benefits that make sense to me.
- VWAP is a simple indicator
- It builds in value, to give you a representation for where the average price is with volume
- Stocks performance is built on periodicity instead of cumulative market data.
Here’s an example of the VWAP and how it gives you an area where the market broke down on.
As you can see, this exit strategy gave you the most “wiggle room” for the trade to work as it ran rigger throughout the morning.
Like a professional athlete, it all starts with practice.
And in order to trade at the top of your game, you need to not only practice but remain disciplined with your warm up routine.
And once you have your warm up routine in place, you should look at forming a daily review of stock charts and patterns to keep your skills sharp.
After reviewing some stop loss examples, it’s important to remember that buying a stock, a stop-loss order on a long or short position should not be placed at random levels.
With strong self awareness, it’ll be easier for you to find that art of giving the market that wiggle room to move around freely, while still protecting your account from major losses.
So to keep learning how to better improve your trading and get the inside look at how Daily Deposits can put you in the position to be an independent trader…