This is a preparation routine we go through every morning together in the classroom. It is important to start your day with an awareness of the bigger picture, the recent trends and patterns, and any catalysts that might be moving the markets. Remember, the tide floats all boats.
Look at the past...
1. Review trends in the daily chart.
Make sure you check the daily chart for the general market, and for each of your focus stocks. Use a catman set-up on the daily chart to identify any potential changes in direction, or continuations in the trends. Look for previous support/resistance barriers in the daily chart. This will give you a bigger picture perspective to orient the direction of your daytrades.
2. Review intra-day trend and patterns in 5 day 10 min chart
Note any visible recurring patterns, both price action and time of day. We may for example see a pattern of 15 cents of early buying in the QQQQ, and topping around 10 am, or a pattern of bottoming at noon and afternoon buying. Also make note of average size moves, like the average amount of early buying. Figure the average intra-day range for the previous five trading days for each of your focus stocks.
3. Make note of the previous day's closing momentum.
In which half of intra-day range did the market and your focus stock close? Often the closing momentum will follow-through the next morning, particularly in a situation where the market or a stock has been steadily trending in one direction, and then makes a sudden afternoon turn-around. It sometimes pays to review where the story left off.
Look at the present...
4. Check the pre-market mood.
Take a note of the gaps, the futures, and general volume pre-market. Check for any news or other catalysts that might be shaking the markets. This early mood is not always sustainable, but it is your first clue of the day.
Look to the future...
5. Check for upcoming economic reports
Many economic reports are scheduled between 9:45am ET and 10:00am ET. Oil Inventories also comes out around 10:30am ET. It is important to be aware of which reports are scheduled because they will often cause a reaction in the markets when they are released.
6. Create a list of potential support/resistance barriers for the day
Include the previous day's high, the previous day's low, the previous day's closing price, any obvious previous support or resistance barriers in the daily chart, the central pivot, S1, S2, R1, R2, etc.