In Trading Routine and Psychology

After all these years, one thing I have never actually discussed on this site is my daily routine: what I do to help prepare myself for a good daily run. I have been asked about this many times now so this post is written with the intent of clearing this up.

The articles on this site always have and always will stress a need for individuality; everyone is different and what is right for me might not necessarily work for others. In addition to simply trading spot FX I’m doing a number of other related things as the needs of my clients are continuously changing, but in terms of the former component, below is perhaps the best possible summary I can give.

 

Mental Preparedness and Staring the Day

I have a simple rule, and fair warning, it's a little unorthodox by today's standards: no looking at emails, no checking the news, no casual phone or other form of communication for the first hour after I get up. I have found over the years that the quickest way to stress me out is to start drilling through the digital world in the first few minutes of my day. This is “me” time, and allows me to relax and start the day in a composed manner. I drink my coffee, eat my breakfast, relax and get my things together before hitting any form of work or challenging my brain in any way, shape or form. I’m unplugged.

I purposely grabbed an office space within walking distance to where I live so it’s no strain on convenience in terms of getting there. Being composed, alert and ready for action, so to speak, is the ultimate goal towards being prepared for the session. Could I work from home? Perhaps, but I have found over the years that disconnecting work and home just allows me to be more productive. My office has everything an office should have: computers, monitors, phone, printer, books and records, some plants, and a good amount of space so I never feel cramped. The best part about the office is it lacks the things an office shouldn’t have: a wife asking you about the weekend (but I love her very much), a TV with a bazillion channels, leisure magazines, a full kitchen, or anything else that can possibly distract me. If you must work from home, I would find a way to create an illusion of disconnect as best as possible. Physically separate yourself from anything that could deter you from moving forward.

I also get in a “breathing” session at some point prior to heading to the office. Whether it be a full-blown workout at the gym or a brisk walk around the neighborhood I like to get my blood flowing and mind active for a busy day ahead.

I get to the office, check emails, write some responses, do a favor for a friend, etc. And it’s time to work. Aside from any housekeeping things associated with maintaining a business, we’ll get into what my day looks like in terms of actual trading:

 

The Tools

There are a few tools that I use everyday, and simply can’t function without. There aren’t that many:

  • Execution Platform
  • Several charting software platforms, from different providers, to compare bids and asks
  • A phone with my broker’s trading desk’s numbers listed on speed dial
  • A live, speaking audio feed for news and events with a readable format to match, and another from another provider just in written form with detail on order flows
  • Reuters Eikon for any complex research
  • Internet browser for the regulars: Bloomberg, Reuters, WSJ, Financial Times, etc.
  • Easy-to-see / access monitors. Stacking monitors might look really neat to your visitors, but they’re useless if you have to crack your neck every time you need to look up at something.
  • Multiple internet connections and backup plan – because you never know.

…and that’s pretty much it. Not too bad and it doesn’t take a lot. The grunt work is what follows.

 

The Task: Analysis

I have been trading for about 11 years now, and I am a little shocked I even made it this far or where I am at in general. It started as a hobby while working full-time at a bank, and then spawned into an entirely different animal. From a psychological standpoint, I have been through it all and seen this market evolve and change in so many different ways, so I know what it is capable of.

My daily analysis to trading is like writing a term paper to graduate….you can’t do one without the other and if you skimp on quality you’re not going to get there. Here is a simple breakdown of how things flow:

 

The Fundamentals

Reading the news and understanding where you are is like reading a map when you’re lost in the forest. You have to understand what the underlying backdrop is for any given time period and where price sits in relation to it all. Reading the news tells me where I am and why price is moving in certain ways. It’s my map. Fundamentals are the cause, traders reacting is the effect.

So let’s get specific: news web sites that get my attention, literally, every day and in this order:

http://www.bloomberg.com/news/currencies/
http://www.reuters.com/finance/currencies
http://www.ft.com/markets/currencies
http://online.wsj.com/public/page/news-currency-currencies-trading.html

…these are the majors, with the top 2 getting more weight. In addition to these my live news providers (I have 3, 2 I use regularly) all provide breakdowns of the facts for any given session. These hit my email inbox and get read as soon as they come. Some of the information in the above and in these emails can be redundant, so I take what I need and run with the rest. Also worth noting is that some of the articles posted form any of these sources can be injected with an opinion, which I am quick to filter. People have a lot of ideas in this business, and few of them are great.

By the time I am done reading I have a very general but concise sense of what is happening, as well as raising my attention to anything that I might have missed. Awareness is key, I say it all the time. If you don’t know what’s going on, you’re going to fumble.

Being an active and former client to several banks I get access to their research, as well. I use these for one purpose: to raise my attention. These reports are NOT used to sway my opinions. They are there for ‘heads up’ purposes only on themes that I might have missed elsewhere. If you are into reading these reports but aren’t a client, get a Scribd account and start reading uploads. Many people post these bank reports daily. Just do a search for them and follow people that do this regularly.

 

Checking the Calendar

Next on the list is to simply check the economic release calendar for the day / days ahead. I use a calendar provided through one of my live news feed providers for this, as most retail Forex websites simply overlook key events, like sovereign debt auctions, for instance, that could really shake a market. Again: awareness. Look at who your sources are and judge their quality.

 

Making a Fundamental Decision

After I’m satisfied with the fundamental inputs for the day, I make a basic determination for how price is going to/could possibly move based on everything I have gathered. Note that I haven’t even looked at a chart yet. I don’t care about price at this point. I care about all the noise, fluff and rumors out there that I know, based on my experience, how market-moving traders react. The directions of my trades (with a strong trend, with uncertainty aka fading a range, etc.) are usually determined at this point unless something harsh strikes me in my upcoming technical analysis.
The market moves in trends driven by all sorts of different things:

  • Raw economic data
  • Rhetoric from government officials
  • News of success or failure by components of any given economy, etc.

….the list could be endless. But ultimately all that matters to me in terms of “fundamentals” is one question:

“Where is the hype / what is everyone focused on and what could counter this in the day(s) week, etc. to come?”

Traders react much more strongly to certain things than others, and I know what these things are simply through experience. After a while you start to read a market like one could forecast the weather……one thing leads to another, builds into another, or crumbles quickly because of another, etc.

For instance, take the hawkish rhetoric lately instilled by the ECB – I know, as do many others, that one quick way to run and excite a market quite a few percent is hawkish rhetoric or the possibility of a greater interest rate differential between two currencies. Hearing this / knowing this is going to have me look to position myself long on EUR/USD for the days ahead, or until the U.S. counters with the same type of tone.

 

Technical Checkups

Current price, daily highs and lows and percentage changes across all pairs I trade are usually the first thing on my hit list. I want to know what I missed while I was away. What key events took place and how did price react? What currencies are leading and which ones are lagging? I just try to put everything in perspective and take what I just read on the fundamental front and have it make sense to what I’m seeing on my charts.

 

Finally….Marking Up the Charts

Drawing support and resistance levels takes time. It takes about 1 second to put a line on the chart but making sure it is the right one is an entirely different story. The decision making process of where to get into the market is usually the part that gets festered upon the most for many traders, when in fact it should just be a function of a few common, underlying things:

  • Your fundamental outlook for the session
  • Common price behaviors and turning points
  • Low risk and control mechanisms over commonly used strategies

I have a list of things that I look for when it comes to support and resistance levels and determining price turning points. In the most broad sense they are:

  • Highs and lows in a trading range – looking for breakouts or “fake-outs” to trade momentum or fade price chasers
  • Bases of liquidity gaps – using them as targets for open positions or turning points in an underlying trend or consolidated range
  • Breaks on major support or resistance: horizontal or diagonal breaks can be used to determine future price movements carrying into other zones
  • Retests on trading ranges – looking for price to enter a previous trading range in order to fade it

Retracements come into play, but they are usually backed up first with one of the above. I have come to the point where my criteria for all of these items is quite dynamic as one factor leads into another and into another, etc. A multiple time frame analysis is done. For entries, larger time frames provide me with virtually the same criteria as they do for smaller ones. For price targets, I am generally more conservative with larger time frames simply because the fundamental landscape can change so much during the specific period.

I mark up my charts with what I believe to be the highest probability plays based on everything that I have gathered, while keeping the book open to future changes. Just because a chart looks one way at the beginning of the session doesn’t mean that potential entry or exit points will change as the day progresses. As the charts move, so do my decisions in terms of where to get in and out. Price exhibits certain behaviors around key turning points. If something throws this off then I have few issues in changing my plan.

 

The Rest of the Day: Execution, Management, Moving Forward

I find myself breaking up the rest of the day between trading, analysis, business maintenance and any other projects I have on tap. First off, I am always monitoring the market. My news feeds are always on and prices / alerts are always on full-frontal display. If you really invest yourself properly there should be few times where you actually get bored. There is always something else you can do, whether it be chart analysis, research or taking some educational pointers from another trader.

I execute in generally two different but very simple ways: long term and short term. I like to keep the books open in terms of opportunity and I know through experience that diversifying my techniques is generally a favorable tactic. I personally prefer, and generally have a higher hit rate with longer term trades. I ride out the noise and let underlying fundamental themes carry me for however many days as a market fad will last. Shorter term trades can be simply harder to call sometimes due to the dynamics at play. I go for high probability moves that I am very comfortable with and only trade during these times. I know my strengths and know my weaknesses and tend to only play my strengths. If no opportunity exists that fits this criteria, nothing gets done. Better to have a zero than negative number posted for the session. There is nothing I detest more than wasted time and putting yourself in the red for an unnecessary cause wastes future time by making up money lost.

Risk gets managed between these types of positions based on some simple arithmetic, contingent, always, on how much I am willing to lose. I size my positions based on what I believe could be my total potential loss. I am also more willing to risk more when very high-probability scenarios present themselves….there’s nothing wrong with this as far as I am concerned.

I usually have a to-do list of side projects. I break them up and keep myself busy on them during any market downtime. There are days where volatility is low or times where you simply have to wait for something obvious to come along, so to keep yourself active try to assemble lists of projects you could be otherwise working with. The market always comes first, however, and I never start something that I can’t drop and get back into if opportunity is lurking around the corner. I never skimp in this sense.

I like it quiet. Distractions are never good for me so I create an environment where I can basically free myself from them. Noise gets me away from the cerebral environment I need to just focus and get things done the right way. Just like side projects, if I must get distracted, I make sure I can get away and back to “focus mode” in seconds.

 

Taking Breaks and Long Lunches

I make it a habit to step away from the computer for a while and gather myself. I can tell when my brain starts to muddled and instead of seeing things one by one, I see them all together. Break time calls. Moving around and getting your blood flowing is something I can’t stress enough.

When people are overtrading, it is usually a function of an underactive brain, staring into space at charts and simply getting lost in the motions of the day. Getting distracted, in this sense, is a very good thing. I used to work at a couple of different jobs where lower level analysts would seem to always have a competition to of who works the longest, and few of them ever got much accomplished. They would “work” 12+ hour days and get just as much done as the guy that sat there for 8 but didn’t let his brain turn to mush.

Don’t ever put yourself in a situation like this. It is bad for your health and bad for your trading account. Taking breaks to mess around and taking breaks for increased productivity are two very different things.

 

Ending the Day

I always try to end every day on a high note. Sometimes I call it day after a huge winner, though I rarely finish on a big loser. Even though I might know it is going to be a down-day, I try to make something up. But I don’t force it. I want to go home feeling like I did my best and losers certainly don’t put me in that state of mind. If I must take a loss I try and “reset” myself and back to focus on where I went wrong. I am at the point where being wrong sometimes is just a function of the business. I don’t blame it on psychology or anything of the matter. It just happens, and has to be dealt with in a logical manner.

Having a huge win doesn’t necessarily mean that the day is simply over either, though. If something needs to be done I make sure that it is. Oftentimes opportunities carry from one session over to another so if I need to invest more time in analysis or research I simply make it happen.

 

Calling for Submissions

This is my day in a nutshell, in as plain language as I can really give it without listing every miniscule motion that I go through. If you are interested in writing up an outline of your typical day and having it posted here on NBT please feel free to send it to me. Idea generation oftentimes comes from the actions of others so I welcome any submissions. Thanks as always and see you soon,

Steve

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Showing 28 comments
  • Greenhaze
    Reply

    Save….Print….Stick to the wall. Good and inspirational article as always!!

  • Max
    Reply

    Hi Steve, thanks for your article. So, from reading it I’m assuming you no longer work and start during the night…..since you are talking about breakfast ? But you have not specified at what time you are having breakfast, coffee, etc so I’m not really sure ;o)
    Thanks
    Max

    • Steve W.
      Reply

      Breakfast for me is at a very odd time of the day for most people….yes I work nights (full U.K. session) for the most part. I try to adjust on Thursdays into Fridays.

      • Frank
        Reply

        Is your business a private client forex asset management operation (i.e. CTA)?

        • Steve W.
          Reply

          I don’t really talk about it here too much but you’re in the right ballpark yes.

  • Lan
    Reply

    Thank you Steve! A great article! Much appreciated!

  • Tim
    Reply

    Thank you Steve for this insight to your daily trading routine.
    I’ve just analyzed my routine and realise that I don’t really have a routine.
    More a turn up and go routine with a casual look at things.
    As a newbie trader I will now make a ‘turn up & start plan’ so that I can be more informed about my new business of trading the Forex.
    As it works for you as a professional trader then I must emulate this.
    Thank you, Tim

  • FloorStalker
    Reply

    Steve,
    Excellant article…very thorough…presented, as always, a very easy read.
    One question though…What time do you start your day?
    Out of bed and an hour or so to collect your thoughts…
    How soon before the trading session starts are you at the office?
    Thanks much for your continued support in the trading community.
    Cliff

    • Steve W.
      Reply

      Hey Cliff, official day start time varies but usually around dinnertime for most people for me. I usually go until the morning, make some routine phonecalls before hitting the hay for another work day. Not the most ideal routine for most people but I just sort of got used to it after a while, to the point where I actually prefer it. Thanks for the great comments and happy to help if I can.

      • FloorStalker
        Reply

        Steve,
        Appreciate your feed back. I guess I’m asking a more specific question regarding start times for the trading day. Trading the Lonon session as you do, how much time do you allow before it gets underway?
        I ask this to get an idea of how much time one would want to invest prior to session start.
        Thanks much.
        Cliff

        • Steve W.
          Reply

          It really varies based on the context for any given day but the whole prep routine I usually allow at least a solid hour for anything standard, but that is going to vary based on what you’re trading. What usually takes the most time is “putting it all together” in terms of the technicals, while avoiding any kind of over-analysis. Some people trade only one instrument, others trade more. Naturally the more you are getting involved in the more time it is going to take to analyze. And this process is sort of continuous throughout the day. I’m always flipping back and forth and making sure I am not missing anything relevant.

  • Frank
    Reply

    Can you recommend any users on scribd.com that are worth following for any macro economic or fx research publications?

    • Steve W.
      Reply

      Specifically no but just do a search for the majors: JPM, UBS, Deutsche or anyone else you’re looking to nab with FX, or FX research, etc….one thing will lead to another.

  • ian
    Reply

    Steve, great artical. I’ve learned a lot from you, many thanks for the great info. Just a few questions if you don’t mind…. Do you think getting a reuters or bloomberg terminal would be overkill for a retail fx trader? Also, can you list your 2 main news feeds? So far I have fxnews from oanda for IFR, DJ, and UBS reports. Then I have Ransquawk live feed going as well. And, one more question, what platform are you using for execution?

    • Steve W.
      Reply

      In terms of what it has to offer no, value is value but in the terms of the cost it could be, but that all depends on financial situation. IFR for Oanda is different than just plain old IFR (more limited) and they are one of them. Also check out http://marketnews.deutsche-boerse.com/ or http://ransquawk.com/ – news is news there are only so many things that happen during the course of a day and they all report around the same level, pretty much.

      • Ian
        Reply

        Cool thanks for the reply, and forthe link to market international. I know forexlive.com (another one) has a stream from them going on their main site as well.

  • Andrew
    Reply

    Thank you for this Steve. Very informative and everyone should follow this to the dot as opposed to sitting down in front of the platform and look at indicators and trades right after one plonks ones’ ass down on the chair.

  • Bruce
    Reply

    A great insight, Steve. Thanks for writing!

  • Name
    Reply

    hi, i read your daily write up hey is fantastic, i’ve joted some point down, keep it up…..

  • kenny
    Reply

    This is a wonderful post Steve!!! This is great stuff and you are giving that out for free to your readers here… Appreciate your sharing!! Many profits to you 🙂

  • Janson
    Reply

    Another insightfull article, Steve.
    So you draw your charts each day new, even the daily charts?
    I thought about that, too, in terms of getting better connected to price. Currently I just adjust the smaller timeframes but a full analysis may be the better routine.

  • David
    Reply

    Thumbs up Steve, nice to see that you’ve added some psychology to the manual.

    • Paul
      Reply

      David: which manual are you referring to?

      • David
        Reply

        The original NBT manual (it can be found on this site and FF), it also described the preparation Steve takes. This article is a complement to the manual and it has some very good psychology aspects.

  • Jason
    Reply

    great article… but sounds pretty costly.. lol. all these computer hardware and services. do you actually need all these? or it can be a supplement when you are bored.

  • ATB
    Reply

    This article is a goldmine, people dont realize the importance of preparation and planning. Having an article that is close to being a manual for preparing for the FX market is priceless.

    Thanks Steve!

  • Dave
    Reply

    great article & website. I have been trading part-time for 5 years now and really want to go full time one day…this is an inspiration to see it CAN be done !

    • David
      Reply

      You have to think “it will be done”, the right attitude makes the difference.

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