Monday, February 15, 2010

Drills to Improve Your Intraday Trading

I recently posted on why I like the replay mode of Market Delta to support simulated trading. There is much more to structuring a learning program, however, than practicing trading. A well-developed training curriculum will break a performance down into component parts, practice those parts with drills (and immediate feedback), and only later assemble those parts into simulated (and eventually real-time) performance.

Here's a drill that I use to practice execution:

You have to enter a trade in the next five minutes and exit the trade within the subsequent five minutes. The key is to find a good enough point of entry that you will take minimum heat on the simulated trade and make a profit. The drill also is good practice at working orders in the book and changing those orders as market conditions dictate. A nice measure of the trader's success with the drill is the amount of heat taken in the trade.

Here is a variation of the same drill to practice position management:

You have to enter a trade in the next hour and exit the trade within 60 minutes of the entry. You have 1000 shares maximum to trade. You have to choose to scale into the trade or scale out and then implement that plan. The drill combines execution ability with the ability to maximize opportunity and minimize risk depending on market conditions. A good measure of the trader's success with the drill is how the scaling in/out compares in P/L with a simple "all in" entry and exit.

Here is a drill to read markets in real time:

When the alarm goes off, you have to enter a position at the market. Depending on your reading of current market conditions, you can choose to buy or to sell for a holding period of up to 30 minutes. You have to identify the market trend, where you'll stop out of the trade (and why), and where you would take profits (and why); then you have to implement that plan. The drill pushes you to quickly size up markets and act on your perception.

Notice that each of these drills involves learning by doing. They also allow for immediate feedback, so that you can see what you did right or wrong and learn from it. Indeed, with replay capability, you can truly review the trade and see how you might improve your performance. Then you can use what you learned for the next set of drills.

There is so much more to learning trading than simply gathering information about chart patterns, statistical probabilities, indicator readings, and fundamentals. Performance is about the honing of skills, and that takes the kind of structured practice that is rare indeed among programs that offer education, mentorship, and training.