An important aspect of trading with confidence is proper preparation and planning for the trading day PRIOR to market open. This includes analyzing the current market action, identifying key levels, and being aware of upcoming economic releases, important earnings announcements, and any other scheduled event that has the potential to move the market, e.g. Obama speech on housing market, etc.
Currently, my homework consists of analyzing the trading day on the 5-minute time frame, and then moving up to the hourly time frame to identify strong support/resistance levels. I use simple Fib extensions and Fib retracements to identify short-term support/resistance. The exercise is not mechanical and is based on price action. Recently, I've begun studying Market Profile, and am integrating volume profile analysis as well. The goal of the nightly planning/prep work is to identify Key Levels in the market, and build out scenarios along with a plan on how I would respond to the scenarios. Price can either move up, down or sideways so the plan doesn't need to be very elaborate but it should provide areas where I want to conduct business (trades). Placing trades at/around Key Levels is extremely important and allows for tight risk management.
I've been posting charts on Twitter and StockTwits for a while now, but I may start posting the charts to the Blog as well. This nightly preparation process is a work in-progress and will be evolving over the coming weeks/months. I'm also looking into integrating simple statistical analysis on historical open/high/low/close price data (details to come later).
Following is the chart I prepared and posted to Chart.ly on Thursday 11/5/09 for Friday 11/6/09:
ES - Daily Bar Chart with Volume Distribution
The price action today remained within the short-term support/resistance levels identified on the chart (1052.25 and 1069) .
What do you do as part of your preparation for the trading day? Do you know where you will be conducting business? As always, comments are appreciated.
"Luck is what happens when preparation meets opportunity." - Seneca