Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
How a Pro Starts the Trading Day
05/05/2011 11:28 am EST
Renowned trader Linda Raschke discusses her pre-market preparations and important steps traders should take to ensure a sound body and mind with each trading day.
Well your morning routine as a trader is very important to get ready for the trading day. The things that you look for and get a feel for the market are very important for the rest of the day and how you trade.
Our guest today is Linda Raschke to talk about her routine. Linda, how do you prepare for the markets in the morning?
Well, first of all, I always try to have my homework done the night before, my plan the night before, and then, of course, the first thing I’ll do when I get up is usually check the markets just to see where they’re trading so I can get a baseline reading.
Ultimately, I hop in a car and go to the office nowadays. My office isn’t right next door, even though it’s just a five-minute ride.
Two things: First of all, all the opportunity comes in the morning sessions. I usually start at 6 am central time, so 7 am central time is a big pickup in activity in the market, so if I’m watching it a little bit beforehand, it helps get a feel.
Also, when you’re trading, it’s a performance-oriented discipline, so the more you can eliminate distractions and get yourself into a ritual or groove right away, I think you’re better able to concentrate. That’s really the key is being able to concentrate right off the bat.
The more you can do something consistently the same way, the easier it is to slip into that “zone,” if you will.
For me, it’s always important that I eat a big breakfast; I always have a giant bowl of oatmeal or a couple of eggs. You know, that really only takes five minutes, but you’ve got to fuel the body and you’ve got to fuel the brain. That’s so important.
People sit there and think they’re going to make it on a bagel or something, and it just doesn’t work that way. It’s really important to have some good nutrition and just make sure you’re in a calm space. You’ve got your stuff around you—your trade sheet or your game plan—and just not try to think about too much of anything.
You don’t want to go so crazy drinking coffee or something so you’re going to have to run to the bathroom right after the opening bell.
I think everybody kind of finds their own routine for themselves, but do eat a good breakfast, do have your homework done the night before, and try and have a space where you’re not going to be distracted or kids knocking on the door, phones ringing, that type of stuff.
NEXT: How to Do Your Homework the Night Before|pagebreak|
Let’s talk about that homework. When you talk about homework, what are you doing, what are you looking for there?
For me, what I’ll do is I’ll go through the markets that I trade and I’ll simply look at “Do I want to trade it from the long side or do I want to trade it from the short side the next day.”
I try to keep it really simple. Or, is there some little coil pattern [for a] possible breakout. I just make a note of these things on my sheet.
It really only takes me about thirty minutes to go through each market, and then I’ll step back and look at the big-picture time frames and say, well, you know, is there any chance we’re putting in a type of double bottom or double top, or is there more significant chart formation?
I’ll approach it “What am I going to do for the next day, and is there some significant chart formation on the big picture that I need to be aware of?”
When you set your bias, or if you have a bias—if it’s long or short or which way the market is going that day—will you stick with that for the whole day, or will you transition if the market tells you it is turning around? So you’ll turn around your trading, maybe go short instead of long that day?
No, you have to be flexible. You have to be able to change your game plan right away.
My old comment is that if you have a game plan, you know when it’s the wrong game plan, too, so therefore, it’s easier to correct it. It’s much better to have an idea and then right away you’ll know if that’s wrong.
For example, let’s say the market has been up for two days, and I come in thinking, “Alright, I’m looking to short the market if there’s an early rally, because it’s a little bit overdone and it can pull back to the middle of yesterday’s trading range.” That might be what I’m thinking in my plan.
However, in the overnight action, it may well be that the market sold off, Europe sold off, the DAX is down, and instead, we’re gapping down, in which case I’ll see if there’s still a rally to short, but it could also be that we gapped down and we’re making our lows first and we’re going to trend higher for the day and close at our highs. You have to work with the market.
Finally, will you choose the market you’re going to focus on most for that day before the day starts?
Yeah, I always watch the index futures because they’re so correlated with the currencies and the financials; there’s really been a ton of market correlation for the last two to three years.If it’s in a liquidation mode, if the S&P’s are selling off, you’ll probably have liquidation in some other markets as well. I’ll go through my 25 markets and try and single out four or five that might have the can’t-miss trades on them. Sometimes I won’t touch a market for two months if it’s not interesting.
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