That’s a question every trader faces not only at the beginning of their trading adventure but every morning after that, for as long as they are involved in the markets.
Which, if you get the trading bug, will be a considerable length of time, maybe even a lifetime.
So where should you start your trading day:
My first thoughts are that your trading day should start ahead of time.
Weekends are valuable downtime, and time spent with family and friends is important and helps to keep you grounded.
But weekends and evenings are also a great time to read about and research the markets. An hour or two spent looking at charts and doing some background reading could be one of the best investments you ever make.
I like to look at the markets am going to be trading in before the event.
if it’s your first week of trading you are probably going to stick to something liquid and widely traded, a big-picture instrument, something like the EURUSD, GBP USD or the DAX 40 index.
Get to know your levels, the recent highs, lows, moving averages, Fibonacci retracements etc. And not just in one time frame, get to know the points of interest in the price action over multiple time frames say 15 minutes, hourly, daily, weekly.
USDJPY across various time frames
Take Notes
Keep a note of these levels at hand for when you are considering a trade, better still set alerts for these key levels in the instruments you are watching/trading.
These alerts can then serve as a call to action or a reminder about the significance of that level within the price action.
Here we see an alert, from Barchart.com, in US stock Valero Energy (VLO) - I have made some notes to remind myself why I am interested in the stock and what the potential is/was.
Plan Ahead
As well as familiarising yourself with key levels in the instruments you are interested in it makes sense to look at the economic calendar for the week ahead, and identify what the key events are, if any over the coming week.
For example, imagine that we are going to be looking at, and perhaps trading, sterling and other UK-centric instruments, such as the UK 100 index. Filtering the calendar (in this case from trading economics) to show just UK data over the coming week creates a list like this
As we can see there are items every day, however, the most important event of the week is the Bank of England interest rate meeting on Thursday.
Knowing when data is due out serves two purposes: it allows you to plan your trading week around potential market-moving events, and it also means you can manage your risk and exposure ahead of key news flow when markets can become volatile, particularly if there is a surprise in the data. That is something that deviates from the market's expectations.
Knowing what the market is expecting from a data point, in advance, is essential, but again the calendar usually provides a consensus estimate, and or a forecast for the data.
And even if doesn’t you can look at the prior data to establish what the trend is.
For example, here is a chart of UK Mortgage Lending data over the last three years
Now we know what data is due, what to expect and what the trends and levels, are in the instruments we are interested in, we can begin to make a plan of action.
Consider the chart below which is a 6-month daily chart of GBPUSD.
I have added a simple and fairly obvious downtrend line to the chart the intersection of the price and the DT line creates an opportunity for traders who could either buy a break above the line or sell a rejection at that level.
The calendar is full of data that could provide a catalyst that could “move the dial” in cable which means we do not have to look too much further for reasons and opportunities to trade sterling and sterling-related assets. However, we must forget that major FX rates are known as pairs for a very good reason and that is that the rate is a reflection of the market forces acting on both sides of the quote and so whilst its good to be boned up on what's happening to GBP slide of the quote we will also need to know what's happening and upcoming on the USD side too.
In part 2 of Where do I star,t we will look at some more tips and ideas about how to plan, prepare for and kick off your trading day.
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