Some Thoughts

A Day Trading Plan Outline

Day trading futures contract is a tough business. Make sure we have a logical and well thought out plan to approach it. The following is the big picture outline of a day trading plan which I have partially developed and still being developed. The time we spend on developing the plan may well save us a lot more money than paying a “tuition fee” directly to the market. Early in my trading career, I paid this tuition fee. I am glad I am no longer paying it.

Instrument

  1. ES futures on 1 minute bar.

Challenge

  1. Among others, we are trading against the smartest and most well-capitalized players with superior technology support in this instrument.
  2. While not the most important, unless we want to join the latency arms race, speedy decision making process and execution is crucial. Automation of information processing is thus desirable.
  3. ES is considered the most efficient instrument with no obvious and persistent inefficiencies.

Potential Rewards

  1. Highly liquid instrument which allow for scalable trading plan.
  2. If executed properly, the plan may generate consistent profits on monthly basis. It may serve as the bread and butter strategies to mitigate the impact of drawdown from longer term strategies.
  3. The signals we get may help us in intraday trading on individual stocks.
  4. There are periods where most stocks move in tandem. Consequently, stock selection skills become less rewarded while market timing skills become well rewarded.

Potential Source of Profit

  1. Front-running liquidity demand of longer term players.
  2. Shifting liquidity (take now and provide later) for potentially trapped intraday players.
  3. Providing liquidity for impatient or forced player.

Situational Awareness

  1. Is there important market event expected in the near future? Does it make market players adopt a wait and see approach today?
  2. Are there upcoming economic /earnings reports before market opens?
  3. Is there an opening Gap. If there is, is it likely due to:
    • economic reports, or
    • earnings announcements, or
    • decisive pre-market action.
  1. Is there evidence of liquidity demand from longer term players? Which direction? Will the day likely be trending or rotational?
  2. Trend and Directional Analysis
    • What is the trend apparent to players on 15 minutes, 1 hour, daily and weekly bars?
    • Are there directional patterns on 15 minutes, 1 hour, daily and weekly bars?
  1. Overbought / Oversold Evaluation
    • Is the market overbought on 15 minutes, 1 hour, daily and weekly bars?
    • Is the market oversold on 15 minutes, 1 hour, daily and weekly bars?
  1. Where are the key Support & Resistance areas? Is there confluence of Support & Resistance on different time frames?
  2. What is driving the market now: futures or individual stocks?

Trade Initiation

  1. Identify situations leading to one of the three potential profit source
  2. If there is, assess logical profit target and stop loss
  3. Assess reward and risk profile
  4. Allocate capital wisely.
  5. Define entry trigger.
  6. Set initial stop, target, and time exit.

Managing Open Position

  1. Adjust stops, targets, or exit early?
  2. Lengthen horizon for profitable trades?
  3. Scaled out of winning trades? Exit on Strength?


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About timelysetup

Timely Setup Owner

Discussion

2 thoughts on “A Day Trading Plan Outline

  1. I paid that tuition too and it was painful. I’ve tried many sites and most all proved worthless. One site I’ve been observing for about two years is eminiwatch.com by Barry. I am not endorsing it and feel the site could be better if he had better defined rules for exit and entry but I do believe his indicators do provide clues not seen in the standard ones available on most platforms.

    Looking forward to following this series.

    Posted by steve | November 9, 2011, 8:39 am
    • Thank you for the site you recommended. Based on what I read and saw from the videos so far, I think he has developed a nice tool to detect consolidation and trend within intraday time frame. Currently, my intraday system does not use any indicator, but based more on intraday breadth statistics, price, support/resistance, and time. I am looking into what Barry has done.

      Posted by timelysetup | November 9, 2011, 12:42 pm

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