GETTING READY FOR TOMORROW

Now that you have gone over all your previous trades, it’s time to start
focusing on the next day. As you reviewed your open trades you should
have been adjusting your plan for them as you went along. But what about
new trades you may want to put on? You can start looking at charts to see if there are any good setups you may want to trade. You can start creating
entry and exit points for these trades. You can look to see if there are any
schedule reports due. If so, figure out how you will react depending on
what the market does. Say you are trading oil and the American Petroleum
Institute (API) numbers are due tomorrow. If they are indicating a bigger
buildup in reserves than expected, you would expect the market to drop.
But after 20 minutes if it hasn’t dropped then you will go long, otherwise
you will short. If the numbers are weak, you will buy right away and give it
a two-point stop.

Look at your charts and know where all the indicators, trend lines,
and average true ranges are. See how the market closed today and figure
out what you want to do the next day based on different openings. In the
morning, you will follow up on this once you know where the opening is
going to be, but it is better to get a head start the night before.
As you scan charts, have a note of what you are looking for. Are you
looking for a breakout, a reversal, a bounce off of a channel? If you do
find something you like, then be prepared by knowing where you will be
exiting so you can estimate a risk and reward. Do your homework, look at
different time frames, be realistic about what you can expect and what you
can lose. Try to figure out how many contracts you will be trading based
on the risk of the trade. This doesn’t mean you will enter the trade in the
morning, but you are giving yourself a potential trading opportunity that
you have preestablished.

All this is a lot easier if you only trade one market; however, if you
are one of those day traders who has 120 stocks on his screen and trades
almost anything, this reviewing process is a little tougher. What I used to
do when I traded equities was I had a scenario I liked to trade (I looked for
trending stocks that have had a little pullback to a trend line) and I had my
favorite stocks to trade. I would quickly go through them all and see which
fit my setup. I made a list of the stocks that did and these are the ones I
would look to trade the next day if they met further requirements.
By doing the things outlined in this chapter you will be well on the
way to starting the trading day with a solid game plan. You will still have to
make some adjustments to it in the morning, but you should now know how
you will react to different situations in the market. You will have your stops
and exit levels for existing trades. You’ll have entry levels for new trades.
And you’ll even have targets and stops as well as risk and reward ratios.