Monday, November 14, 2011


A question was asked about how I prepare for and conduct myself during the day. I felt this was such a good question that I would devote a post to it.

As a backdrop to discussing this, let me first make it clear what 3 things I typically am doing in an average day.

1) Trading overnight futures positions
2) Trading overnight stock positions
3) Day trading a couple of markets

Each weekend I write down in my journal what I consider to be the weekly condition of each market. I generally analyze the COT report, along with what my proprietary tools are also telling me. I make a note of these and consult them before making any overnight trade. I may very well trade in the opposite direction of what the weekly tells me, but I want to know a larger perspective on things.

Every night after the close I write down all the possible trades I have for the next day, then I proceed to whittle them down to what I am actually going to do. Once I have done that I place the orders during the night session. I do this for both stocks and futures overnight trades. I also place contingent orders for stops and set alarms to wake me up if they fill, so I can be sure the contingent orders do get in correctly. I have been burned a couple of times by not doing this, so this is a must do. I also make sure to check my account statements to make sure my positions match what they show. Rarely do I find a problem, but remember it is all on you if there is one. There has never been and never will be born, a brokerage firm that will ever admit to having made a mistake, EVER. It will always fall upon you so make sure to catch them right away. I moved almost a million dollars out of Trade Station for them failing to make me whole on a $3000 mistake they made. I told them they needed to make me whole or I would leave, they did not so I left. They have their pride and ego intact, but not my money, so be it. I will never be back. I do have some money there in equities but no futures accounts. The equity money will be leaving as well once I find the right home for it.

Also at night I review the markets I day trade, usually Crude and the ES and the trades from that day. I look at what I did right, what I blew, what I should have done etc.. Then I move on. Day trading is very difficult, there just are not the tools we have for overnight trading, so some fudging has to be done and my accuracy is not nearly as high. This is a constant work in progress. I do make money doing this but not nearly as much as I do in the overnight trades.

I live in San Diego so I am on PST so keep that in mind for timing of things. I generally wake up at 4 am or so without an alarm. I am just used to getting up at that time, so I wake up naturally. Also, little Vinny is usually ready to get up and do some damage by then anyway. One thing about him, he is the only puppy I have ever had who just sleeps through the night in his crate without crying or whining one bit, and he does not pee in his crate. This should be medically impossible but it is what it is. Nonetheless I would be up at the same time anyway. Typically there is not much happening in the markets between 4 am and 5 am. However, since my orders are already in, I get rid of all the daily charts on my screen and symbols in the grid, for anything I might be in. I do not like watching the overnight trades I am in during the day. The only time I do it is when I am looking to enter additional contracts to get to my full size on a pullback. Once those contracts are filled, off the board that chart goes.

This takes a tremendous amount of stress off. Watching tens of thousands of dollars and more come and go all day long everyday is very taxing. I would much rather just have the orders in, have my stops in, and then have a moment of truth at days end where I check in to see what happened.  In the event that I got beat up, there is just a moment of pain, then it is time to move on. In general I usually don't feel much one way or the other, each trade is for the most part just another trade.

During the day I just have my two day trading markets on the screen and focus as much as possible on just those two markets during trading hours. If I get to a period where I see there are not any imminent trades coming up, I often scroll the daily charts in all the markets other than the ones I am in or those closely correlated to them. I do this just to have a good idea of what might be setting up for the next day. I quickly go back to the day trading tick charts and try to stay focused there.

I rarely do research during the trading hours, that is usually done after market hours and on the weekends. This is not work to me, it is what I live to do, so working on the weekends and at night is not work to me.

There is one huge problem that often rears it ugly head during the day and I am sure it hits everyone. When you work out of your home, your family often thinks you are just hanging around and are available for all sorts of things that pull you away from working. You need to make it very clear that you are working and cannot be disturbed. Spouses will always fight this, and I can't tell you how many trades I have missed due to this. However, I like working at home, it is comfortable, and I certainly do not feel like going to an office building every morning at 4 am. You are going to have tough conversations with your family, but they need to understand that you are working when you are in your office and you are not to be disturbed. No trading, no GI Joe with the Kung Fu grip for Xmas.

Overall, it is vitally important to do one thing correctly. You must be completely focused on what you are doing. I like to think of this as compartmentalized thinking. I have no idea if that is even a word but spell check seems to be allowing it. This just refers to keeping your thinking focused to one thing at a time, and not letting your mind wander to other things. When I am day trading I could not have a care in the world what is happening elsewhere. The same is equally true when overnight trading and not day trading. There is no reason to get tied up in an intra day tick chart, when you are thinking about what to do on a trade you want to hold for several days. This is a huge mistake so many people make.

The logic goes something like this. "Well if I can find an entry on a 60 minute chart I can get by on a lot less risk, then I can turn it into a daily trade." The people who do this are missing the point. A 60 minute chart is far less accurate than a daily chart and you can get whipped around at insignificant points and lose money, while the daily trade never took a loss. You are never going to make a $10,000 per contract gain on a 60 minute chart, NEVER. If you do that crap stop it right this second. This is flawed logic. If you are going to day trade, day trade. If you are going to trade on a daily chart, do that. Do not mix these two together, EVER.

Once the market has closed I often get away from the screens. I have other business interests which I am not going to get too deeply into, that I get involved with during non market hours. It serves as a good distraction and then I can get back to the markets with a fresh view after a few hours. There are also times if I am going through a bad trading period, where I just walk away from the markets for a day or day even a week if need be. I just play that by ear, and go with my gut at the times I have done it. I know when I am out of sync, and I do not let my ego get in the way. I know the biggest mistake I can make is to let a losing streak get out of hand. There is always another trade, but there may not always be another dollar if you blow up your account. If you feel you are just out of sync walk away and re group. It is what I do. Every time I have ever done that I have come back strong. Fortunately, I have only had to do this a couple of times. I never lose respect or fear of the markets. They are all powerful, and I know that if I am not diligent and prudent, I can get into trouble.

Stay disciplined, use appropriate risk, stay focused and keep your eye on the ball. I hope this is helpful. There are no magic words in here. This is what I do for the most part every day and every week.

As far as market setups, my overall view is this going into Tuesday. Based on the way POIV looks in many markets, I think this down move is not going far. It seems to be showing strength in the indexes, currencies etc. There is bullish divergence in most of them. The Euro has it and is also into a good seasonal spot for a buy. The Crude market which I have also been talking about has that triple divergence in my proprietary indicator, but is also by far the strongest energy, so I just don't see the logic in shorting it here. As a result of this, I just don't see anything really lined up great for Tuesday.

Good Trading


ya said...

Chris, thanks for sharing that. How many & what markets do you regulary follow? Do you pay attention to news, earnings releases,fundamentals, option expiries, market reactions?

colin said...

Thanks for that info - well worth the read.

Chris Johnston said...


No to all of that. I trade on my technical indicators why would I pay any attention to any of that I don't trade based on those things.

That is all noise to me

Mark said...

Chris, these were some bad ass remarks. Thanks!