Unique Weekend Market Perspectives

*  In the above chart, we're tracking upticks among NYSE stocks vs. downticks as a measure of the balance of buying and selling pressure.  Note how intermediate-term cycles tend to start with solid buying pressure and gradually give way to less buying and eventually a negative balance between buying and selling.  With the recent rise of the dollar, we've seen selling pressure overtake buying interest in stocks.

*  Thanks to a savvy trader for pointing out this intelligent posting on the dynamics accompanying negative interest rates in Europe and U.S. dollar strength.

*  I continue to like the Stock Spotter site, which publishes buy and sell signals (and tracks their results) for stocks based on John Ehlers' cycle work.  I notice that we have over 50 stocks with buy signals as of Friday's close.  Since I began collecting the data in December, 2013, when 40 or more buy signals have fired for Stock Spotter (N = 25), the next five days in SPY have averaged a gain of +.76% (17 up, 8 down) vs. an average gain of +.22% for the remainder of the days.

*  Excellent post on winning and trading from Bruce Bower.

*  How interest rates are moving in the U.S. vs. Europe and other worthwhile perspectives from Abnormal Returns.

*  My posts on making positive psychology work for your trading--and life--performance.

Have a great weekend!
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Best Practices in Trading: Screening for Success

It's important to think of overtrading as a compromise of our best trading.  Good trading is selective, putting risk on opportunities that have a positive expected value.  When we lose that selectivity, we not only court losing trades and periods in markets.  We also undercut our own judgment and compromise the basis for our success.

Today's best practice comes from reader Steve Ryan who describes his process for screening for promising stocks and trades for the day session.  Steve explains:

"My strategy is to find stocks that will move the most even during a choppy market day.  Therefore, stocks with news and momentum stocks are two groups I trade the most.

Moreover, I am also concerned about liquidity.  Primarily a day trader and a swing trader, I cannot afford to let the market makers eat away my profits.  Slippage and huge spread are two silent killers for short term traders.

Therefore I create a scan (using the free FINVIZ version) below to get the stocks I want to look for the next day.  The stocks must be:

*  Liquid, with an average volume traded per day of 1 million or more;
*  Volatile enough with average true range of 1.5 or higher;
*  Priced over $20
*  Price is above SMA 50 (for momentum up) OR below SMA 50 (for momentum down)
*  Simple moving average 20 is above SMA 50 (for momo up) or below SMA 50 (for momo down)

This scan usually returns anywhere between 150-210 stocks every night.  From there, I look at Daily, Hourly, 15 minute, and 5 minute charts to find the best stocks to trade the next day.

One can alter the average volume per day, the price threshold, or the ATR to get more stock results."

The best practice here is having a robust process for separating greater opportunity from lesser opportunity.  Once you filter potential trades based on screening and then further filter that list, you have helped avoid overtrading and focused yourself on the trades that are best for you.  Notice how Steve places both volatility/liquidity and trend in his favor in his screening, increasing the likelihood that he'll get the magnitude and direction of moves during the day session.

Further Reading:  Quant Resources for Discretionary Traders
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How the U.S. Dollar Rise is Impacting the Stock Market

We have the unusual situation in which many central banks--most notably in Japan and Europe--are pursuing monetary policies of quantitative easing, while the U.S. has been in the mode of exiting its program.  The result is that interest rate differential trends across the world--as well as relative economic growth--increasingly support the U.S. dollar.  Indeed, as we can see from the top chart, the dollar index has been on an upward tear since mid February.

How is this impacting stocks?

We can see a meaningful correction among large cap shares in the second chart, the Major Market Index (XMI).  Note the smaller correction among small cap shares in the third chart, the S&P 600 Small Cap Index.  The larger companies that depend upon overseas sales become more vulnerable during dollar rises, as their prices become particularly expensive to those overseas buyers.  Smaller companies that produce and sell domestically--and especially those that import from overseas--are less impacted by the rising dollar and benefit from domestic growth.

Finally in the bottom chart, notice that sectors have performed very differently over the last few months (chart is from Finviz).  Utility shares have been particularly hard hit, given the drop in the large cap indexes but also the rise in interest rates in the past couple of months, as investors anticipate a normalization of rate policy from the Fed.  

The bottom line is that central bank dynamics are creating relative winners and losers among stocks, rather than the relentless upward trajectory we've seen over recent years.  This is true across market cap indexes and sectors, but also across the share indexes of regions of the world.   

Further Reading:  Sector Correlations and Their Importance
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Best Practices in Trading: Scenario-Based Planning

A good rule is that we cannot be prepared for a situation if we do not anticipate the possibility of that situation materializing.  Many times we become so focused on our base case--and locked in confirmation bias--that we fail to contemplate alternate scenarios and how we would respond to these.  Many times, emotional overreactions to trading events are the result of lack of preparation:  we are surprised by events that were entirely foreseeable as possibilities.  That element of surprise places us in a stress mode, impairing our perception and reducing our ability to calmly act upon prior planning.  Show me a situation in which a trader violated a trading plan and the odds are good that it's a situation in which lack of planning created surprise, frustration, and emotional disruption.

Today's best practice comes from reader Jitender Yadav from India, who points out the value of building alternate scenarios as part of planning for the trading day:


"One of the interesting characteristics of the markets is that they never fail to surprise us with their actions and catching us off the guard. Often these surprises prove to be costly. Although no one can know for sure market’s next course of action, still we can prepare ourselves to face the surprise. In the evening before the trading day we can imagine about all the possible scenarios that can play out next day regardless of their actual probability to occur. We can, for example, imagine the ideal conditions we would like to see before making a long entry or the worst conditions to make a trade at all. We can imagine about our response to breakout failure or our plan of action during a short squeeze.  It won’t take much time to think of so many other possibilities and we can do it in our free time like during the evening walk, etc. Again the markets have their own minds and even after this scenario building exercise they can have something different in store for us but then if one of our imagined scenarios actually plays out, we are ready with our plan."

Note that such scenario planning requires an open mindedness, as we can only anticipate a range of situations if we are open to many possibilities.  For this reason, scenario planning is a great tool to maintain cognitive flexibility.  It is very common that traders will take actions during the day that, in retrospect, seem unfathomable:  "How could I have possibly done that?"  Generally, such boneheaded actions are the result of becoming so focused on short-term action and one market scenario that we fail to step back, assess the entire situation, and plan for multiple possibilities.  Jitender's observation is that such perspective can be an ongoing part of preparation for trading, enabling us to act decisively in the face of multiple possible outcomes.  It is such planning that allows us to make sound decisions in the heat of battle, as we remove much of the market's ability to fill us with shock and awe.

Further Reading:  Making Use of Visualization
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Best Practices in Trading: Conducting Structured Performance Reviews

It's easy to become so caught up in trading that we fail to review--and learn from--our trading performance.  The successful money managers I've worked with have had structured processes for previewing markets, viewing markets during trading hours, and reviewing trading once the day and week are finished.  Previewing brings preparation and rigor to trading; reviewing allows us to stand back from our decisions and take a coaching perspective.

Today's best practice is structured performance review from Ryan Worch, principal at Worch Capital.  He explains:

"I always want to be confident that I'm operating with an appreciation for the larger picture.  It's easy to get bogged down in the day-to-day action so I make a point to create a series of monthly goals and observations.

At the end of each month, I perform a post-analysis on all of my trades.  This is where the real work is done.  I assess every trade and figure out what worked and why it worked.  By doing so, I'm hoping to see what is being rewarded in each environment.  From this, I can set goals for the next month.  Sometimes breakouts are working, or mean reversion, or pullback trades.  The only way to determine this is by breaking down every trade at the end of each month.  This process loop and feedback is critical to staying engaged and adapting to ever changing markets.

I'm challenging myself and asking questions during this process.  What characteristics did the winners have?  What did the losers have?  Is there a pattern to be recognized?  I record all of this for future reference.  This is a feedback loop that makes me a better trader and helps me break down information more quickly in future markets and trades.

Some quantitative examples are:  % winners vs. losers; average win vs. loss; % of equity risked; % of equity gained/lost; % gain/loss on each trade, etc.

From a qualitative standpoint:  What caused the position to move (surprise, upgrade, downgrade)?  What was the surrounding market environment like?  Were outside forces at play (geopolitical event, monetary policy event, etc.)?"

Note that Ryan is reviewing both the market environment and his specific trades.  By seeing which trades are and aren't working, he gains insight into the market that can be fed forward into future trading.  That insight can also help him take more risk in favorable environments and pull back his risk taking in murky ones.  Knowing why your trades have worked can provide useful clues as to what could work going forward.

Further Reading:  Using Trading Metrics to Understand Your Trading Psychology
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New Views for Launching the New Market Week

*  As you can see from the chart above, Friday saw a huge expansion of stocks closing below their lower Bollinger Bands (raw data from Stock Charts).  Since early May of 2014, when I first began collecting these data, those large expansions have generally led to further price weakness in the near term.  Specifically, there have been 22 occasions in which we've had 200 or more NYSE stocks closing below their bands.  Over the next three trading sessions, SPY has averaged a loss of -.95% (6 up, 16 down).  That is notable weakness, considering the general period has seen rising prices.  Indeed, all 22 occasions posted a lower daily close in SPY over the next three trading sessions.

*  Perhaps my most important post since returning to blogging.  I've found this to be the best predictor of sustained trading success--also a huge predictor of life success.

*  Red flags for investment strategies and other top reads from Abnormal Returns.

*  From Alpha Architect:  buy cheap stocks--and here's the best way to define cheap. 

*  A big week ahead in markets and a look back from SeeItMarket.

*  More on the art of learning from WindoTrader.

*  Dividend capture strategy and options screens from Options Samurai.

Have a great start to the week!

Brett
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Best Practices in Trading: Using Movement to Gain Emotional Control

We know from research that exercise has a number of health and emotional benefits, including increased well-being and improved concentration.  In spite of this, most traders work in highly sedentary ways, seated at a desk and watching screens for hours at a time.  The lack of movement keeps us restricted to a narrow state of mind and body and makes it difficult to shift our state when we enter periods of frustration or discouragement.  There are also significant health risks associated with sitting.

Today's best practice comes from Scott Garl, a long time reader.  Scott explains how creating movement at one's workstation can provide multiple personal and trading benefits:

"My best practice is absurdly simple, yet I haven't seen a comment on your blog or any other trading related blog or resource regarding the benefits of a stand up workstation and/or treadmill workstation versus the traditional sit-down workstation.  I do know that some traders complain about the health problems associated with sitting all day long.

Since purchasing a treadmill workstation eight months ago (to supplement my sit-down workstation), I can't say that my trading results have exploded to the upside, but there have been noticeable improvements from using it 2-3 hours per day.  Staring at the screens at a brisk 2.4 miles per hour (as I'm doing now) has helped to alleviate two problem areas:  frustration trading and trading out of boredom.  It's just plain difficult to spiral into negative emotions after a stop-out or two while so physically active and breathing deeply.  And it's nearly impossible to feel bored and fall prey to looking to the market for action.

Additionally, I feel a significant creative boost, as I never forget to turn on my Focus At Will feed, which I always forget to do while sitting for some reason.  That helps to increase my mood, focus, and creativity even more.  The treadmill has even helped with procrastination, as I tend to tackle many to-do's that normally get put off.  I've lost significant weight, have noticeably stronger abs, and have gained muscle mass as a result of also using a dumbbell while reading or evaluating market patterns."

Scott's combination of work and exercise keeps him energized while trading.  His use of the Focus At Will music and the weights also keeps him mentally and physically active, making it less likely that he will become bored during the trading day.  His insight that it is difficult to lapse into negative emotions when staying physically energized is an important one.  Controlling our bodies can be powerful ways to achieve cognitive and emotional control.

Further Reading:  The Performance Benefits of Exercise
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Taking a Fresh Look at Stock Market Breadth

In the last post taking a look at market breadth, in mid-February, I pointed to waning breadth but continued buying interest to suggest that we had made a momentum peak in stocks, that further price strength was likely, and that the recent rally was part of a longer-term topping process.  The most recent market weakness, in response to economic strength and concerns regarding an eventual normalization of U.S. interest rates, is consistent with the February view.

As we can see from the top chart, which tracks the number of stocks across all exchanges registering fresh three-month new highs vs. lows (raw data from Barchart), breadth has been waning in the stock market since the very late October highs.  Despite new price highs during 2015, the number of stocks participating in that strength has been unimpressive.

On a more micro basis, the middle chart tracks all stocks listed on the NYSE  and whether they are giving buy signals or sell signals on the CCI (Commodity Channel Index) indicator (raw data from Stock Charts).  As a rule, this measure has topped out ahead of price during intermediate term market cycles and bottomed shortly ahead of price at market troughs.  We indeed see the weakening pattern preceding the recent drop.  Interestingly, we are currently near levels that have corresponded to intermediate term market bottoms.

Finally, on the bottom chart, we have the percentage of stocks in the SPX universe that have closed each day above their 3, 5, 10, and 20-day moving averages (raw data from Index Indicators).  This, too, has tended to top ahead of market peaks and bottom slightly ahead of or coincidentally with market troughs during intermediate term cycles.  Here too we notice the pattern of weakening prior to Friday's drop.  We also see that the breadth measure is close to levels seen near recent market troughs.

So what does this all mean?  I continue to believe that stocks are in a longer-term topping process; that the topping is probably related to the ending of aggressive monetary stimulus; that continued buying interest and price strength suggest that the topping process has not ended; and that we close to short-term oversold levels that have corresponded to market bounces over the past year.  Such an environment can provide good trading opportunities, though it may provide limited upside for investors.

Further Reading:  When V Bottoms Are Not V Bottoms
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Best Practices in Trading: Constructing an Effective Trading Journal

One of the challenges of any performance field is that peak performance requires immersion in an activity, but improving performance requires the ability to stand apart from that activity.  That is why elite performers always engage in several processes:  practice/preparation; real time performance; and reviews of performance to guide future practice and preparation.  That three-part cycle captures the essence of deliberate practice and ensures that we learn from experience on an ongoing basis.

Today's best practice is offered by reader Danny Shcharinsky, who emphasizes the role of journaling in working on oneself as a trader:

"Among the many practices and routines traders recommend following on a daily basis, there is one that stands out the most in my trading. This one has nothing to do with actual trading (read: "cutting losses" or "letting profits run"). This one has to do with YOU. That's right: Journaling. Good ol' pen-to-paper-write-your-heart-out type of journaling. While many successful market practitioners will always advise on how to do this, the one truth is that there is no right or wrong way to go about this. And I also don't mean the type of journaling where you get your trading platform to spit out a bunch of general statistics. While statistical analysis is certainly important to the improvement of your edge and intuition in your trading, I'm talking about the real hearty stuff - writing down your feelings about a particular trade, pattern, general market, even right down to what you had for breakfast. In a world where neuroscience has overwhelming evidence that our mind shapes our bodies and physical actions, do you think it may be a good idea to have a clear record of your thoughts? I would vote Yes. So go ahead, complain about the losses, get mad, angry, happy, excited, and inspired, but do it on paper, so you can move past it and grow.

Reviewing last night's journal entry first thing in the morning (prior to starting your trading day) would put you in the right frame of mind to do whatever it is that needs to be done. In addition, it would further crystallize concepts, ideas, and best actions that you have been practicing and thinking about for the past week, month, year. Repetition is the mother of Skill, right?  Taking all of the above into consideration, I would add that this has to be done and reviewed consistently.  Yes, everyday, or at least consistently enough that it makes a difference...Being consistent about your journaling will lead to a better and more clear flow in the way you feel and think.  You will also find out things about yourself that will allow you to change, improve, and grow in ways you have not imagined."

Danny points out that journals can be used in many ways:  to vent frustrations, prepare for the coming day, and crystallize one's longer-term market views.  Reviewing journals enables us to encounter our thoughts and experiences from a fresh perspective, as we now read what had previously been stuck in our heads.  This creates a kind of dialogue in which the journal helps us carry on a conversation between ourselves as traders and ourselves as trading coaches.  Through the journal we can observe ourselves, but also guide ourselves.  That is why I am a big fan of journals that contain observations (what we did right and wrong); goals for improvement (extending what we did right, correcting what we did wrong); and concrete plans for implementing that improvement.  

In short, journaling at its best is real time business planning.  It is a way of observing our trading business and managing it effectively.  If we are spending our time either doing things worth writing about or writing things worth doing, we are most likely to be productive and successful.

Further Reading:  The Power of Trading Journals

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Measuring Stock Market Sentiment With the Index Put/Call Ratio

The recent post took a look at the Equity Put/Call Ratio (the ratio of put volume to call volume for all listed options of individual stocks across all exchanges) and what it tells us about the market.  Above we see a five-day moving average of the Index Put/Call Ratio (the ratio of put volume to call volume for all listed options of stock indexes; data from e-Signal).  Interestingly, the two ratios since 2014 have correlated only .25, which means that they share a little over 6% of total variance.  This suggests that the two measures function differently vis a vis sentiment.  If a portfolio manager has a long/short book and wants to quickly hedge a net long position, buying index puts could be a quick way of accomplishing that.  If that same manager wanted to express a view in a single name or hedge a directional exposure to that particular stock, the options for that stock would be the most effective expression, liquidity providing).  

Another interesting feature of the Index Put/Call Ratio is that it has varied wildly over recent years.  In 2007, we routinely saw 20-day averages above 1.70.  As you can see from the chart above, we have never seen such a high reading during the period since 2014 and indeed have not seen that kind of reading since 2010.  We even have an example of variation in the ratio in the recent data.  Note how, since the October 2014 drop, we have seen higher put/call ratios than earlier in the year.  In other words, money managers are doing more hedging now than earlier in 2014.

The absolute values of the Index Put/Call Ratio do contain information, but it's tricky given the wandering mean of the distribution and the correlation to concurrent price change.  Since 2014, the Index Put/Call ratio has correlated -.56 with the percentage of SPX stocks trading above their five-day moving averages.  This is what we saw with the Equity Put/Call Ratio:  there is a tendency to buy puts after short term declines and vice versa.  Sentiment is quite sensitive to recent price movement.

Since 2014, when the Index Put/Call Ratio has been above 1.0, the next five days in SPX have averaged a gain of +.68% vs. +.22% for the remainder of the sample.  When either the Index or Equity Ratio (or both) have been above 1.0 (87 trading days), the next five days in SPX have averaged a gain of +.82% vs. no change for the remainder of the sample.

In short, it does appear that options ratios tell us something about sentiment; that index options reflect different sentiment issues than equity options; and that teasing apart the ratios from recent price change might provide a purer measure of the value of options-based sentiment as a predictor of short-term price action.

Further Reading:  Measuring Sentiment Intraday 
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Understanding Options-Based Sentiment in the Stock Market

I'm currently working on creating better indicators of stock market sentiment.  Above is a five-day moving average of the equity put/call ratio:  the ratio of put volume traded for all listed individual stocks divided by their call volume (no index volume included; raw data from e-Signal).  You can see that spikes in the ratio have corresponded pretty well with buying opportunities in the past year.

Of course, the put/call ratio is influenced by price change.  In fact, the correlation between the percentage of stocks trading above their five-day moving averages and the five day equity put/call ratio is less than -.56.  In other words, when markets have been strong over the short term, there has tended to be call buying relative to put buying and vice versa.  Perhaps the most important takeaway here is that sentiment in stocks has been very fickle with traders/investors shifting over surprisingly short time horizons.

Looking at 2014 to the present based on a simple median split, if you bought the SPX when the proportion of stocks that closed above their five-day moving averages was high, the next five days averaged a gain of +.14%.  If you bought when the proportion of stocks above their five-day averages was low, the next five days averaged a gain of +.38%.  If you bought when the five-day equity put/call ratio was in the top half of the distribution, the next five days averaged a gain of +.44%.  If you bought when the ratio was low, the next five days averaged a gain of only .08%

In short, over the past year, short term weakness has led to relative bearishness and superior short term returns.  Short term strength has led to relative bullishness and inferior short term returns.  Teasing apart sentiment and concurrent price change could provide a purer view on sentiment that might inform short-term trading decisions and the execution of longer-term positions.

Further Reading:  Stock Market Sentiment
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Best Practices in Trading: Planning Your Trading Business

A little while ago, I met with some traders and asked them to bring in everything they had prepared for the new year of trading.  All of them brought a list of goals for the new year.  Most of them brought lists of what they had done right and wrong during the previous year.  None of them laid out concrete plans that detailed how they would take the learning from the previous year and use it to work toward their new year's goals.

In other words, they took the time to set goals, but didn't drill down to create plans for achieving those goals.  How likely do you think they were to achieve their ideals for the new year?  Yet all of them felt that they were working on their trading.

Today's best practice comes from an experienced observer of both markets and traders, Tadas Viskanta, author of the well-known Abnormal Returns blog.  In this excerpt from his Abnormal Returns book, he emphasizes the importance of planning in trading and highlights the use of checklists in the planning process:

"One of the problems novice traders have is that they don't treat their trading with the same rigor and seriousness that they do with any other sort of business endeavor.  However, trading is just like any other business in that it has revenues, overhead, variable expenses, etc.  Trying to trade off the cuff without a plan or a means for measuring your performance is a recipe for disappointment.

Many traders balk at the idea of formulating a trading plan because they feel it might stifle their creativity or ability to react to rapidly changing market conditions.  As well, in the wider world of startups, the detailed business plan seems to have gone into disfavor.  In the world of trading, it never really seemed to catch fire.  However, traders are well served to think about how they plan to go about generating profits.  A trading plan that lays out the instruments they will trade, when they will trade them, and the methodology they will use to enter and exit trades is essential.  Maybe even more important is a strategy to limit losses both on individual trades and in an overall portfolio.  And as important as an overall trading plan might be, a trade-by-trade plan might be even more important.

Some traders find it useful to have a checklist they consult on an ongoing basis when they trade to ensure they are not missing anything along the way.  As Atul Gawande, author of The Checklist Manifesto, writes: 'In aviation, everyone wants to land safely.  In the money business, everyone looks for an edge.  If someone is doing well, people pounce like starved hyenas to find out how.  Almost every idea for making slightly more money--investing in internet companies, buying tranches of sliced up mortgages--gets sucked up by the giant maw almost instantly.  Every idea, that is, except one:  checklists.'  Checklists don't dictate what a trader does; rather they ensure that what a trader is supposed to do actually gets done.

The hallmark of a well-designed trading system may be the actuality that a checklist can be created.  The more experienced and successful the trader, the simpler his or her trading system becomes over time...Experienced traders have spent a lifetime whittling down ideas into a plan that works for them--and maybe nobody else."

Tadas makes a key point here:  You don't have a robust trading process unless it can be captured via checklists--and you can't truly claim to be process-driven if you have not codified those checklists and used them to guide decision making.  Airline pilots check all systems before taking off and follow a well laid out flight plan.  Physicians check their patients' systems before developing and following an evidence-based treatment plan.  In both cases, winging it with unstructured decisions would lead to catastrophic consequences.  The best trading plans are grounded in best trading practices--and those become a template for best performance.

Further Reading:  A Psychological Checklist for Traders
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Best Practices in Trading: Organizing Your Trading Morning

One of the best ways to ensure a sound trading routine during the day is to construct a sound routine during the morning.  How we start our day so often sets the tone for that day.  That means we can either start the day focused or distracted; disciplined or lax; prepared or unprepared.  I have long maintained that one of the best ways of identifying successful traders is to observe what they are doing when they're not trading.

Today's best practice comes from Steve Spencer of SMB Trading, and it involves establishing a productive morning routine:  one that prepares both the trader and the trading:

"I have a routine that begins from the moment I walk into the office each morning.  It is designed to both have me focused and prepared to trade the US equities market open at 9:30 AM.  It has evolved over the past few years as my responsibilities have broadened outside of my own personal trading to include preparing the desk for the day and dealing with non trading matters as well.

Here is the current list of things I do each morning after arriving at the office:

1)  Fill up my water jug (hydration is one of the keys to mental alertness)
2)  Restart computer
3)  Open Gr8Trade (proprietary equities platform)
4)  Open LiveVol (options platform); if any options trade ideas, open related Level II boxes
5)  Open eSignal (external charting software)
6)  Login to SMB RT (proprietary trading tools)
     6a)  Open game plan (form used to enter my trading ideas)
     6b)  Fill in 2nd day and technical plays (ideas based on prior research and preparation)
7)  Enter alerts for 2nd day plays into Gr8Trade (pop up alerts if stock trades at key prices)
8)  Open SMB Scanner (research tool for finding stocks in play)
9)  Complete game play sheet with Stocks in Play ideas
10)  Enter top trading ideas into journal (important for later review process)
11)  Ideas must include entries/stops/targets/risk amount
12)  Options ideas are entered in margin at the top of the page
13)  Conduct AM meeting (discuss market and top trading ideas for the day)
14)  Enter orders for Stocks in Play ideas discussed at AM meeting; input ideas into auto scripts to assist entries if market busy on open

The following items help bring me back into focus for the market open:

15)  Two minutes of breathing exercises
16)  Put on RT microphone (audio feed for desk and SMB community)
17)  Discuss top trading ideas and plan via audio
18)  Share any stocks/important levels from the chat that are interesting

So that is my entire morning routine.  The thing that has changed the most recently is my ability to enter various scripts that will allow me to trade a variety of trading setups during busy market times that I otherwise might have missed.  I find that in today's market, if you miss certain entries right at the open, it can impact your risk taking for the rest of the day.  The scripts are also a great tool to support me on days where other responsibilities pull me off the desk."

Notice how Steve's morning routine accomplishes two purposes.  First, it organizes his day and decision making.  He identifies and prioritizes opportunities during his preparation and thus is able to act quickly and decisively when trades actually set up.  Second, the routine enables Steve to process an unusually large amount of information in a concentrated period of time.  Note his use of custom tools for much of his preparation.  These enable him to screen for opportunities and program them for action (via scripts and alerts).

Finally, observe that Steve's routine is a combination of individual information processing and processing in a group.  His preparation enables him to bring ideas to other traders, but also sets up conversations that bring him ideas.  Over the course of a single day, Steve is simply encountering more trading opportunities than most traders--and that makes it more likely that he can focus on the best ones and maximize his results.

Further Reading:  Simple vs. Simplistic Decision Making in Trading
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