Sunday, January 07, 2007

Morning Comments From the Doc: Putting It All Together in Trading

I've recently received a large number of emails asking me about training and education in the area of short-term trading. It appears that there are a number of services out there offering mentoring and education services for thousands of dollars. Because these services have no real track record, traders are understandably reluctant to pony up those sums.

In my personal site, I try to summarize the market data I'm looking at each day and how I'm putting the data together into an initial framework to start the day. This site summarizes some of the research I conduct to identify possible trading edges, mostly from 1-5 days out.

The reality of trading, however, is that such preparation only gives you initial hypotheses and plans. The real skill of trading comes in when markets open and you have to analyze shifting patterns of supply and demand as they emerge. In my own trading, I follow several variables very closely (one-minute data):

* Whether volume is higher, lower, or equal to average volume for that time of day;
* How the most volatile market sectors (small caps, NASDAQ, semiconductors) are trading relative to the large cap indices;
* How interest rates, currencies, gold, and oil are trading during equity trading hours;
* NYSE TICK (number of stocks trading at offer vs. bid) and shifts in the distribution of the TICK;
* Volume of contracts executed at the market bid vs. ask for the ES futures;
* Whether a majority of sectors are participating in moves in the ES futures (I look at Spyder sector ETFs for much of this info);
* Value area (Market Profile) from the previous day's trade and how volume expands or contracts as we trade outside that area;
* Levels of support and resistance from the previous day as well as the current day, to identify potential trading ranges and levels we're likely to test.

If you were to watch me trade, you'd see me continuously shifting from one window/screen to another, monitoring these variables. At some point a pattern becomes clear and I get an idea of shifting demand/supply that will lead us to test a particular market level. That becomes the basis for a trade idea, particularly if it is in line with my prior research. I average 2 trades per day, mostly in the AM, and averaging 20 minutes in holding time.

In the next couple of trading sessions, I will try to post occasional market impressions as they occur. I won't be posting every few minutes as I have during the "Morning With the Doc" sessions. Rather, I'll wait for situations in which I perceive a larger pattern and will try to illustrate that. My hope is that this can help model a big picture way of thinking about short-term trading without being unduly distracting to you--or to me!

At the very least, it will illustrate a way to track markets that won't set you back thousands of dollars. I don't claim to be a Market Wizard, but--knock on wood--I've stayed profitable in my trading and have grown as a trader through long and sometimes hard experience. If sharing any of that experience can help others with their learning curves, that would be great. The idea, however, is to take away from my posts what makes sense to you, reject the rest, and integrate everything into your own trading style. Let's try it out Monday and see how it goes.