where you learn new ways to understand the latest market trends, gain strategy insights, and learn from the experts. My name is Rod Mahnami and I’m grateful that you’ve given me this opportunity to join you on your investment journey.
This week’s edition of Profit Talk we’re going to cover the importance of creating and following winning trader routine. I’ll share the 5 main steps in my routine and summarize how they can help you better capitalize on market opportunities.
It’s extremely vital to your success to adhere to a methodology that provides the most opportunity for you as a trader and investor. In the end it’s always about your plan or strategy and how clean and consistent you are at executing that plan which determines success or failure.
Create your objective and then outline the action steps to best achieve your goal as simply and concise as possible. As I’ve shared previously, my trading goal is simple -I apply as many non-correlated, high probability trades as possible, while continually taking profits and managing risk. But, the fact is, having a plan with no course of action is pretty much useless.
That’s why having a routine is so important. The primary purpose of developing a winning trader routine is to keep you pointed directly at your trading goal, at all times.
Think about this...whether you’re conscious of it or not, any job you’re doing and are successful at, you’ve developed some sort of “success routine” to follow. You’ve accumulated all your experiences over a period of time and formulated action steps that bring success.
And the more disciplined the person is at following their routine, the more success they will experience. Look at any super-star in their field. Any successful professional has a routine they follow which leads them to their success. Trading and investing is no different. All successful investors have routines and there are essential elements, common among all.
We don’t have time to cover it here, but I wrote a short report on the subject of success elements. It’s called Elements of Superior Investing. You can get it free on my blog if interested. It’s a short read, only about 9 pages, but it lays out what I believe to be the common foundational elements across all superior investing success.
In the report, I talk about the success formula described by one of my favorite success mentors Napoleon Hill. He is probably best known for his book “Think & Grow Rich”. The book, which was released in 1937, was written from the knowledge Mr. Hill gained interviewing 500 of the most successful people on the planet, over a 25 year period. He explains that you’ll find all success results from executing one simple formula. You must have or somehow accumulate specialized knowledge;organize and direct it, into a specific plan for success, then express that plan in continuous action.
Here’s my point in all this, the “Winning Trader Routine” as I’m calling it, is designed to be the method of expressing that plan in continuous action. It’s not just some basic trading rules or something to read and then “stick in the drawer” figuratively speaking. It’s the attempt, on my part to infuse the Essential elements for Successful Investing into action steps. More specifically, it’s my method of expressing in action the accumulated knowledge I’ve organized for investing success.
You often get lots of theory on the subject of trading and investing, but you know that results don’t come from theory, they come from action.This routine is all about creating constructive action when it comes to your investing activity. It’s suited for my personality, so it may not be perfect for you, but it’s definitely a great place to start and can be altered to suit your style.
When it comes to long term success it’s never about luck, success happens when opportunity meets preparedness. For me I’ve found that following this routine gives me the best chance for capitalizing on the opportunities that come in the financial markets. And more importantly, following my routine keeps me from making critical mistakes.
Let’s go over the 5 main steps to my routine which help me apply as many non-correlated, high probability trades as possible, while continually taking profits and managing risk.
This routine should be followed prior to entering, adding to or adjusting trades.
Step number 1 - Check and make note of high impact government report releases for US markets and if applicable, any foreign market if you’re trading it’s currency or associated stocks or indexes.
There is a great website that make it easy at forexfactory.com. Go to the calendar page and use the filter to select the correct country. (Figure 1)They list many reports. The impact the report is expected to have on the market is color coded with Red for highest expected impact, orange for medium and yellow for low expected market impact. I filter for Red & Orange reports only.
The highest impact reports can create notable moves in the market. In the US markets, they are often responsible for the turns that occur regularly at particular times. The most notable are the morning reversals, traders sometimes refer to these turns as the “10 o’clock reversal” and the “10:30 reversal”. 10:00 & 10:30 am east coast time zone, are common release times for many high and medium impact reports. Awareness of the release can provide great opportunities and keep you out of trouble as well. Especially, in short term trades or sector specific investments.
The forexfactory calendar can be adjusted for daily or weekly views depending on your level of activity. Making this step a habit in your routine may provide opportunity for profit by exploiting the volatility which often accompanies the report releases. In addition, keeping an eye out for these reports may help avoid market timing mis-steps.
The 2nd step in your trader routine should be to Evaluate and manage any open positions & monitor dividend or earnings releases as applicable.
Shorter term trades and highly leveraged positions require you to be aware of upcoming company news, especially earnings events. Extreme overnight price gaps often occur when earnings are released. It’s best to monitor earnings releases using multiple sources because sometimes the information on one source is outdated and/or wrong.
I generally use earnings whispers .com https://www.earningswhispers.com/
And the yahoo finance earning calendar https://biz.yahoo.com/research/earncal/today.html
These sources are usually accurate.
I should point out that while it’s uncommon with larger, established companies, companies can and do change the date, or announce one date and then release early on occasion. The point is, if you are using leverage and or holding short term, overnight trades, often referred to as short term swing trades, you need to be mindful of earnings releases or any other high impact company news and plan accordingly. You need to be aware of these events but they should not be feared. On the contrary, they can bring a lot of opportunity. You can capitalize on these high emotion events using options.
Another potential risk to watch out for can come in the form of a dividend release. If a dividend is paid and you are short stock or short calls that are in the money, you’ll most likely be responsible for paying the dividend. Make sure to watch out for pending dividend payments in markets you are short to avoid an expensive wack in the face. If you like using short stock strategies, but want to avoid the dividend issue, you can use options to create a synthetic short stock position that avoids the dividend risk. This process will be covered in future editions of Profit Talk.
Okay, so there’s the first two steps in a healthy trader routine. Let’s look at the 3rd step of a winning trader routine. This step says to evaluate your portfolio to determine additions which may enhance portfolio performance and maintain proper diversification. In order to do this, simply compare the beta weighted deltas your portfolio currently represents to your desired weighting and look for opportunities that best keep you in line with your plan. If you’re portfolio currently carries -90 deltas and you are looking to be bullish, you’d need to add positive deltas to maintain proper balancing. If you’d prefer a bearish stance, then look to add some negative deltas. Finally, if looking to remain more neutral in your approach, then you may want to add positions that are flat deltas. You would look to apply some non-directional trades. The details regarding beta weighting your portfolio was covered in the December 12th, 2016 edition of Profit Talk called “Balanced Portfolio Techniques”.
Now that you have a plan, it’s time for Step #4 in the trading routine, which is to scan for opportunities to consider. Again, modern tools have reduced this process to mere minutes.
You can create scans to locate trade candidates that provide exactly what your portfolio needs.
If you need some bullish candidates, pull up your bullish scan and click scan, now just go through a quick analysis to choose the best prospect and enter the trade. Or, if trying to stay neutral, load a scan to search for range bound markets, choose the best of the group and place a non-directional trade that carries little to no deltas in either direction.
Now, you are in control of your portfolio’s exposure and can choose the stance you most prefer.
Once, you’ve narrowed the field and are ready to enter the trades, you’re ready for the 5th and final step in a winning trader routine which is to Follow “Trade Entry Checklist” to enter trades. This may sound redundant to lead into another list of steps to follow. That’s true, but it’s important to create a habit of confirming the trade is entered correctly, prior to placing it. A simple check that the symbol is correct and the number and type of contracts or shares in the order is correct is always a great idea. Do that, enter the trade and you’re done.
That’s it, you now have a 5 step system to follow that is designed to help you consistently express your plan for investing success in action. Are you starting see how applying just a little bit of specialized knowledge has the possibility to completely transform how you invest, and most likely your results as well? Remember, the universal formula for success that I shared with you earlier, the one that Napoleon Hill detailed in his teachings? Mr. Hill says this same formula can be found behind every success story. It’s a result of -
Accumulating specialized knowledge
Organizing it and directing it into a specific plan for success
Then expressing that plan in continuous action
Well, once again, this routine I’ve shared with you, is my version of that formula in action. I hope I’ve inspired you to use the routine in your trading or create your own version. Either way, it’s critical for your long term success to develop and follow a plan that directs you to your goal.
The main takeaways this edition of Profit Talk are to first and foremost create a clear and concise trading objective. As I’ve shared, the Profit Effect primary trading goal is to place as many high probability, non-correlated trades as possible, while continually taking profits and managing risk.
Second, create a routine to follow that will give you the best chance of reaching your objective. Use the routine I’ve shared with you or create one of your own. In either case, having a plan is vital to your success.
Third, infuse the plan into a routine. This is really the whole point with this lesson. Having a strategic plan is meaningless if it’s not being followed. Creating a habitual routine that includes the key components for reaching your goals is really the only way to find consistent success.
This past week the major indexes have remained in a very tight trading range. Volatility continues to get crushed and this certainly makes it challenging for those of us who like to sell option premium.
The trend is still up and the sideways price action has brought the price of the major averages into the trend trading zone. Entry here is perfectly legitimate for a bullish trend trade.
The Federal Reserve is meeting this week and the Fed Funds Rate or interest rate and Fed statements are due out on Wednesday. The expectation is for a ¼% rise in the rate to be announced. Any surprises here will certainly affect the equity markets. Also, the Fed Statement which looks to the future can produce some fireworks depending on what’s said.
On that note, let’s take a look at the highest impact economic reports due out this week.
Tuesday 3/14 - The PPI or Producer Price Index comes out at 8:30 am eastern.
Wednesday 3/15 - Big day for reports. We’ve got the CPI or consumer price index and retail sales coming out at 8:30 am eastern, Crude Oil Inventories at 10:30 am and the Federal Reserve announcement and press conference at 2:00 pm eastern.
Thursday 3/16 - Building Permits, Philly Fed Manufacturing index and unemployment numbers coming out at 8:30 eastern
Friday 3/17 - Preliminary Consumer Sentiment number released at 10:00 am and the G20 meetings Day 1 kickoff on Friday
Definitely opportunity for some fireworks in the market this week if there are any surprises. We’ll see what happens.
I hope this has been helpful for you. If you have any questions or comments, please leave them below or reach out on social media. You can also email me directly with any questions or comments at email@example.com.
Thank you so much for being a Profit Talk subscriber. I look forward to joining you for next week’s edition of Profit Talk. Until next time keep trading and investing the Profit Effect way proven, consistent and stress free, just the way trading is supposed to be.