5 Things that Simplify Trading, Reduce Clutter and Improve Performance
What to focus on, and not focus on while day trading
Day trading can be relaxing; it doesn't need to be the stressful, pull-your-hair-out endeavor often portrayed on TV and in the media. To reduce stress, and make your trading clutter free and efficient, ask yourself "What do I need to focus on?" This isn't an easy question to answer. Thousands of articles, market truisms (most of which offer little applicable insight) and conflicting opinions make it seem like you need to juggle and focus on hundreds of different things. That's not the case. If you want to reduce your stress levels and keep your trading fun and efficient, here are a few things to keep in mind.
No Financial News While Day Trading
When you day trade, your sole purpose is to trade your strategy. Avoid listening to the news, as this information is likely to only distract you from your strategy (see Completely Ignore Fundamentals When Day Trading). The people's opinions on the news may bias you slightly, causing you to take a trade that isn't part of your strategy, or to skip a trade you should take. As a day trader the news offers no valuable insight. Rarely are day traders ever featured on the news, and if they are, the trades discussed are probably already gone.
In a trade that lasts a few seconds to a few minutes there is no benefit to listening to financial news.
Check your economic calendar in the morning before trading--as part of your daily day trading routine--so you are aware of precise times conditions may become more volatile. During those times step aside; that's the only "news" you need to be aware of when day trading.
Limit Your Trading Instruments
Of all the stocks, forex pairs and futures contracts, what should you trade? It comes down to one choice: Are you going to use a very precise strategy, and find trading instruments each day that compliment that strategy? Or, are you going to have a flexible and adaptive strategy, which adjusts to any instrument being traded?
There is no right or wrong answer.
If you use a very rigid strategy, you need to constantly search for trading instruments that match your trade criteria (see Free Stock Screeners to Find Stocks for Day Trading). This may involve finding a handful of stocks or forex pairs (for example) to monitor throughout the week. Only trade instruments that are moving in a way that compliments your strategy.
If you use a flexible strategy, you can trade the same instrument (stock, forex pair, or futures contract) every day. Some days the instrument will be more volatile, and sometimes less; sometimes it trends, sometimes it ranges. The strategy needs to adapt to all these conditions if you expect to make consistent daily profits day trading. This approach requires no research once you have refined your strategy. Although, becoming consistent with a flexible strategy that you can apply in all market conditions often takes much more work and more practice when starting out.
Limit Your Chart Data
You're day trading. Don't get bogged down by looking through loads of time frames. The daily and weekly charts are of little consequence to a day trader. When I'm day trading, my charts start at the pre-market; that is all the data needed.
Trade the trend of the day, and don't let long-term trends bias you. Even though the trend may be up on the daily chart, don't let that bias our trading decisions if you are getting valid trade setups to the short side. Even during an uptrend the price can fall for days on end.
You may be asking "What about support and resistance on the daily chart...should I be watching for that?" You can, but you don't need to. Support and resistance is not a specific price, it's an area. A support and resistance area on a daily chart is typically too big to concern ourselves with while day trading. For example, the S&P 500 e-minis may be respecting a resistance area about 10 points wide on the daily chart. To a day trader 10 points (on the S&P 500 e-minis) is huge. Several trades could take place in a 10 point span.
The daily support and resistance areas aren't precise enough to concern ourselves with. Focus only what has happened since trading began that day. That will keep you in the moment, and help you avoid information overload.
Limit Your Indicators
Technical indicators manipulate price and/or volume data. Normally what you see on an indicator is visible on the price chart. If your strategy requires an indicator, use it, but avoid the compulsion to keep adding indicators in an effort to get "higher probability trades." This approach doesn't work. Adding indicators usually just means you end up with a bunch of indicators telling you exact same thing that one would, or you get conflicting signals causing you to second-guess valid trade setups.
Limit your indicators to one to two...or preferably none. Learn to read price action--the most timely market information--and technical indicators will serve little purpose.
Trade the Trend, Always
Want to really keep your trading efficient? Avoid trades where you are offside (in a losing position) for long periods of time. Do that by trading in the direction of the trend, and avoid trading against the trend. If you are unsure how to spot trends and enter into them.
Trading isn't about re-inventing the wheel or adding more information. Your trading is more likely to improve by cutting out a lot of useless information which distracts you from what really matters--what the price is doing right now! Reduce or eliminate your financial news consumption. Limit how many trading instruments you monitor everyday; with a flexible strategy you can trade the same instrument every day your entire career (no homework or nightly research). Limit the price data you look at; today is what matters.
The biggest thing you can do to improve your trading, making it more efficient, is to always trade with the trend.