Best movers

This routine is pretty simple. At the end of each trading session, check the best up movers and down movers. Try to understand:

• What catalyst stands behind the move
• How extended the move is
• How the instrument moved trough the trading session
• How longer term time frame looks like
• What the fundamentals are

This exercise will help train your eye to recognize what you need to see and understand the catalysts and their strength. You will start to notice patterns, such as a day when a biotech company publish positive results in Phase III studies of their drug – most of the time, the stock moves more than 3*ATRs (Average Daily True Ranges). For example, you might also notice that if a stock has a short float >30% of outstanding shares, the stock tends to move more erratically, because short holders are typically more nervous – when you short, your risk is theoretically unlimited, as there is no cap on how high a stock price can go.

Playbook Trade

This best practice is aimed at studying and internalizing the trades that made the most sense to you. You pick a trade that resonated with you and save it in a structured way so that next time, you can trade it better and with greater size. Mike Bellafiore offers a good structure in his book The Playbook:

• Big Picture: For example, how does the S&P 500 look on a daily time frame?
• Market Price Action: Analyze the S&P 500 intraday chart.
• Fundamentals: Consider the news catalyst, average daily volume, relative volume, average true daily range, shares outstand and short float, if it’s in any index, how the sector is doing.
• Instrument’s Longer-Term Time Frame: Check where the stock has significant potential support and resistance levels and what the market structure indicates.
• Instrument’s Intraday Price Action: Save charts for 1-minute, 5-minute, and 15-minute time frames. Mark where you entered (or where you would have entered if you didn’t trade it). Include details like the type of order you used, your stop levels, the risk you took on this type of trade, the number of shares you could afford to buy relative to your stop, your scale-out or scale-in points, and any thoughts or notes about the trade.

Be sure to follow these two best practices religiously, as the market is a living organism. To stay abreast of market changes, you need to study the best opportunities and delve deeper into the trades that make the most sense to you.

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