As humans, we tend to perform our best when we have a well laid out routine. Chaos is something that most of us by human nature tend to avoid at best. With trading, having a routine brings with it a certain level of discipline which helps you to improve your performance as a trader. Having a trading routine helps you follow a trading process and at the same time will help you to avoid taking impulsive trading decisions, be it entering or exiting a trade prematurely. Professional traders, whether they trade currencies or bonds, or stocks follow a routine.
So what kind of routine works best? These following steps should help act as a guideline to build your own trading routine.
No matter what kind of routine you follow, they will most likely fall into these three categories:
- Psychological: The psychological aspect of a trading routine can be personal and subjective. For some, starting the day with brief exercise works, while for some meditation also works. Finding that little routine to prepare your mind for the day ahead and also to clear up any distractions can have direct results in how you deal with emotions while trading.
- Information: The informational aspect of trading deals with keeping an ear to the markets. A quick round up of the previous day's events and reading up on what to look forward to, for the day or the week can help you to focus on selective instruments rather than pick an instrument to trade randomly.
- Analysis: The analysis part of the trading routine if of course spending time with your analysis on the charts. Making notes and doing initial ground work such as risk management and so on.
- Execution & Management: The execution part of the routine is where all your hard work is put to test. Executing a trade could be simple but managing your trade so that a winning trade doesn't turn out to be a loser or failing to cut your losses plays into the bigger picture.
Plan your trades and trade your plans
This is a common saying among the trading circles. But does planning a trade simply means, analyzing a chart and then trading or is there more to this?
For traders who actively trade the forex markets, the only 'quiet time' we get is during the weekends when the markets are closed. Planning your trades over the weekend can help you to pick out the currency pairs to focus on and will also give you an edge when you combine both technical and the prevailing fundamentals that are driving the markets.
Establishing a procedure
Establishing a routine or procedure can help you to follow a certain path. For example, if you are really serious about trading, start by analyzing your charts over the weekend. Free from noise and with the currency markets closed, you can take your own time to draw up your analysis and conclusions.
Once you have your plans were drawn up over the weekend, which should typically combine both fundamentals and technicals, also focus on the trade or risk management aspect of it. Little things such as how much to risk on a trade or finding correlated pairs to trade can help improve your strategy.
Some traders tend to follow both a weekly and daily routine.
Steps to build a 'weekly' routine
- Read up on the fundamental events that occurred over the week and also read up on any news and opinion pieces which reflect on the week ahead
- Glance through the weekly economic calendar and make a note of any upcoming fundamentals that will likely be a catalyst for prices
- Analyze your charts over the weekend. Start with the weekly (or monthly) and build a context of the markets
- Once you spot a potential trading opportunity, you can then look into the smaller time frames to time your trades accordingly
- Divide your analysis into "Watchlist" and "Opportunities". Watchlist will be the currency pairs that you are interested in, but either not sure how prices will move or you are waiting on the sidelines for a good trading opportunity to come up. On the other hand, Opportunities section should contain trades that you are most likely to trade, given that you have done your top-down analysis including technical and fundamental analysis
- On the potential set of trades that you have now have, run through your risk management to see the potential profits and losses that you can make.
- From the set of "Opportunities" try to filter out any trades that you are not entirely sure about and focus only on the trades where you have a strong conviction and one which is supported by your analysis
- As a final run down, re-check on the fundamentals by searching for related news or commentary on the currencies that you are trading. Re-evaluate your opportunities
- When the week starts, only keep the charts for the currencies that you are trading, to help you avoid the temptation of looking at other charts and potentially ending up trading them, which falls outside of your trading plans
Steps to build a 'daily' routine
- You can make a habit by first reading up on any news events from the day depending on your location. If you are based in Asia, then scan the news for any financial news from the previous day's US trading session and the current Asian session. If you are based in Europe, read up on what has happened in the Asian session and any news that has occurred prior to the start of your trading. Or, if you are based in the US, watch how Asia closed for the day and how European markets are evolving
- Spend a few minutes on the charts that you already analyzed over the weekend to determine the general sentiment and any fundamentals that could shift the markets around
- Before you start trading always, take a look at the potential losses you might incur if the markets moved against your analysis. Focusing on the losses will help you to at the very least remove the regret aspect from the equation which could otherwise snowball into taking impulsive trades or trading on gut rather than trading based on your analysis