Throughout the development stages of a trader, they must strive for consistency, but also they must continuously improve their process. The process I’m referring to here is the trading process itself;The actions, interpretations and tools that a trader applies to the market to generate trades. This is distinct from the Trading Strategies that are in the trader’s plan and also distinct from the Strategy Developement process where a trader develops and hones new strategies.
Most traders split their trading process into several routines that they implement and along the lines they will evolve them with new information, tools as they develop their intuition for trading. The main areas of a trading process may look something like this:
Each Routine may be composed of several activities. Here is a look the most common activities within each routine.
- Initial Daily Routine – first thing a trader does in the morning. Some traders will split this routine further into parts they will do on their smart phones (on their commute to work) and the rest they do on their stations at work (or home office)
- Review how their overnight positions (if any) are doing and check for trade exits
- Review what happened overnight in terms of news/fundamentals/calendar
- Check their watchlists and charts for approaches to their entry/exit areas
- Main Analysis Routine – this is where a trader would apply their strategies to the market.
- Fundamental strategies would involve spending time reading Monetary Policy meeting minutes, economic analysis reports, and reviewing Economic Indicators
- Technical strategies would involve reviewing lots of charts and perhaps analyst recommendations.
- Some strategies combine both and some strategies involve neither.
- The important thing at the end of this routine is that a trader should have a Watchlist of trades that they would like to implement. This can be a tracked on an Excel sheet, directly on the charts, on a piece of paper, or simple just in the trader’s mind.
- Market Monitoring Routine – after the analysis is done (and sometimes without for intraday traders), traders will then monitor the markets with special focus on their Watchlist of trades. Traders will sometimes setup notifications and alerts for their target prices instead of monitoring prices for a long time. This particularly helpful for longer term traders and those who trade as part-time activity
- Market Catchup Routine – a separate routine which not all traders will apply is the Market Catchup routine where they catchup with what other traders/analysts are saying about the markets. Traders who focus on their own strategies and analysis of the markets will skip this step, however, the majority of traders will always want to catchup with some sources (news, analysis, blogs, forums) to give themselves a balance to their views or to find a counterpoint to their analysis.
- Trading Routine – when a trade is identified through analysis or monitoring, the trader must then execute that trade. This usually happens with a checklist of items to go through before putting in an order or a certain ritual that they go through; Checking the time of day, the individual’s own emotions, maybe peeking at the Calendar once more to make sure there are no upcoming risk events, or simply just checking recent news to make sure nothing’s changed since their analysis. This is referred to as a routine because there may be multiple actions performed before the act of putting in the order.
- Performance Review Routine – this is a critical routine which is one of the key’s to becoming a trader. This is where a trader will review their what they’ve done and whether it worked or not. The variations of how traders review their performance are innumerable, but they usually revolve around going through the trading execution history and checking that against the original analysis behind those trades. From there it can be determined whether the analysis was correct and whether the execution was proper.
- Analysis review results in findings that tell the trader whether their analysis was compliant with their strategy or not. If it wasn’t compliant with the strategy then they must dig deeper into finding out why they incorrectly analysed this trade. Was it simply missing a certain indicator confirmation or perhaps it was an emotionally charged analysis due to external analysis that primed the trader
- Execution review tells the trader whether they executed the trade correctly or not. Did the wait for the confirmation that they were looking for or did they jump the gun? Did they stick to the Order Size that they were meant to put in? An so on. This feedback should then be internalized so that on the next execution the trader would remember to results of incorrect execution.
- Review results should be incorporated into the rest of the process that the trader implements and whenever possible into the tools used: Excel sheets, Charting platform, Trading platform, etc…
This general grouping of trader process applies to most traders, however, each individual trader may split the activities slightly differently and with a different frequency. For example, some Intraday traders like to perform a quick Performance Review every morning and look at yesterday’s trades, what worked and what didn’t. That actually becomes part of their Initial Daily Routine.