Friday, November 6, 2009

Preparation and Planning for the Next Trading Day

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 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


  1. The downside target in your chart, is that for next week, because the reaction to the report was down closer to the minor support.Low was 1053.50
    Also, would you indicate in the chart where your entry would be?
    Otherwise is very subjective and of no value.
    Only an observation, room for improvement perhaps.

  2. There's always room for improvement. The 1038 possible downside target and 1076 possible upside target was for Friday, but price didn't reach those levels. That's perfectly OK.

    Regarding entries; the key levels are identified on the chart (areas where I want to enter trades). The 1052.25 area was marked as support, so that's where I would enter Long. Similarly, 1069 would be an area to exit Longs, or enter Short.

    I ended up going Long at 1056; scaled out into 1062-1064.

    If you have any other ideas on this, feel free to post them in the comments. Thanks for stopping by the Blog.

  3. I agree that daily prep is vital. After the end of a long day of work (7;30 AM to 4:00 PM) it would be nice to just quit. But that's when the prep for the next day starts. The most important work I do every day is not trading, it is the prep work because entries/exits are very tightly correlated to the S/R levels I draw in the prep work. If I don't do the prep work I won't even trade the next day.

  4. Great post, E-mini player. I don't trade futures, but your preparation can be applied to traders working with a variety of instruments.

  5. Is this a "vol by price" indicator?

  6. mvw, see my latest post on how to create this chart in TradeStation. It's a Volume Distribution study that comes with TS.

  7. I assume your picking up on this volume profile form ft71 as I am - but I'm struggling with the basics of areas to do business in. I understand the high volume areas and the rejected areas(low volume) but not getting how to pick out entries and exits. Trying to understand the difference between rotation around a high volume area and acceleration to the next area of volume. Can you elaborate? thanks in advance!

  8. It is nice that you are working out a better nightly homework routine. The fact that you are adding market and volume profile recently is good.

    However, I think you should give credit to @FuturesTrader71 on Twitter for bringing on this change since you are using his ideas (including the use of Volume Distribution charts in TS). Give credit where it is due. He has handed so much out to the community and asked for nothing in return.

    Nice and informative blog though.

  9. Buck, I've known about Market Profile for a while, but didn't start looking into it till I ran into Matt Fahmie's blog. Then FT71 started posting his charts and that got me even more interested. I haven't studied market profile enough to answer your question. I would recommend checking out Matt F's blog over at

    At this time, I'm simply using the high volume areas and low volume areas as support/resistance levels. I don't use them in isolation though; I combine them with the homework I was already doing based on Price. I then confluence the levels from both charts (price and volume profile) to come up with Support/Resistance levels. Trade entries/exits in real-time are based off reading price, but the point is, to look for price action patterns around the key levels for improved risk/reward.

    Hope that makes sense.

  10. Thank you for the previous answer but,

    How did you decide to go long at 1056 if 1052.25 was marked as support? There is a difference of 4 points? Was there another dynamic factor you were looking at or was it a setup you saw?
    The marked level on the chart was too far away from your actual entry, there must have been something else that gave you the confidence?
    Where did you place the stop loss?

  11. Check the 5-min chart for 11/6/09 uploaded here:

    Price spiked on the Econ# in the morning and tagged 1069.50 at 7:30 AM (central). From there, it sold off and dropped to 1056. Retraced up 4.25 pts, and made another move down to 1053.50 but on much lower volume (a sign that this down move may be running out of steam). It also didn't tag my level at 1052.25 (another sign that this may be it for the down swing). Price then retraced from 1053.50 up to 1058.50 (5 pt rotation). At this point, I either want to Short at higher levels closer to the mid-point and vwap, or enter Long at lower levels closer to support. Take a Fibonnaci retracement measurement from 1053.50 to 1058.50. What do you see? 1055.50-1056.00 is the 61.8 and 50% reracement levels. Once price hit 1055.50, and began moving back up, got long at 1056 with a stop at 1054 (my MAX stop-loss on any trade is 2 points; usually even less).

    I'm sure I was also looking at a lower time-frame chart to fine-tune the entry a bit, but that's the basic setup. Nothing too complicated or fancy. Pre-defined risk of 2 points.

    The levels just provide me with a frame-work. Trades are always taken based on what price is telling me in real-time. It's a lot harder than it sounds but I've given you the basic premise of the trade setup and hope it helps.


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