Tips for an Effective Trading Routine
One of the most important things that a trader can achieve is consistency. While consistency and returns are both good measuring sticks for a solid trading routine, the reality is that achieving consistency is more than simply racking up a certain number of wins or losses - it is having a trading routine that you follow like a machine.
why do you need a trading routine?
The biggest advantage to having a trading routine is that you have a certain set of rules and standards by which you apply your craft. If you don’t have a defined playbook of the set ups that you are paying attention to, you could find yourself justifying all kinds of trading positions that aren’t necessarily prudent. Having a set Forex trading routine will dictate how you monitor the markets and how you ultimately place your trades. It will make sure that you don’t stray from your plan and that you remain focused.
Having a stable Forex trading routine will also give you structure to your day and to your trading life. Your trading will become more of a career and less than a hobby, which is important if you want to make real money by trading Forex.
In my opinion, part of your trading routine should be to see how the equity markets fared overnight. If you are in the United States, you will want to know how both Asia and Europe turned out. Let’s just pretend that Tokyo and London both saw a lot of selling during their sessions while you were sleeping in the US. If that’s the case, it’s easy to see that it could be a “risk off” type of session. That gives you an idea as to where you deploy capital. You certainly are not looking to buy a riskier assets, or risk currencies at that point. As part of your routine, you may wish to check this market before putting money to work, which of course makes sense.
What routine is correct?
Finding the correct routine is a highly personal thing, so keep in mind that what works for you may or may not work for the next person. Still, I’d recommend making a set routine each day. Head to your desk at the same time each day, leave at the same time each day. Look for the same market indicators and news announcements each day, week or month. Doing this will help you develop a healthy understanding of the markets and how they move during the times you trade.
When creating a trading routine, it comes down to how you look at the markets. If you are shorter term trader, then last night’s action may be the most important thing to look at each morning. However, if you find yourself being more of a longer-term trader you may look towards scanning the recent economic announcements and geopolitical headlines to make a trading decision. Getting a look at the news certainly makes a lot of sense in both scenarios, but it just comes down to which type of news you are looking for. This is a highly personal decision as far as what routine is correct but suffice to say that you are looking for a routine that gives you the best results, and simply sticking to it.
You may also want to incorporate break times into your trading routine. You may feel compelled to stick to your desk, but many times stepping away is the best way to refresh your mind and create a new perspective towards the marketplace.
What happens if I cannot stick to my desired routine?
There are two cases in which a trader would find it difficult to stick to routine. One is a case where the markets change suddenly, so the routine, by its very nature, changes. The other is when life circumstances change, and then the trading routine is forced to change. Many times, in these cases, traders find themselves in a situation where they can’t stick to the routine but choose to trade anyways because they think they could always be making money. However, the odds of success are much lower if you are out of your element, or in this case out of your routine. If for some reason you find that you can’t do the usual things that keep you profitable, then it might be best to simply sit on the sidelines and wait until you can – even if it means breaking from your routine. A routine is great because it provides you with a framework. If the framework is shaky, don’t worry if you need to beak from your routine or take a break from trading.
The importance of journaling
One of the biggest advantages to keeping a journal is understanding what scenarios typically work out best for you. Journaling is an essential part of building a routine that can lead to profitability over the longer-term. When you keep a trade journal you can keep an eye on all of the factors involved during your trading day and the result. If you start to notice a correlation between a specific action and results, then that should become part of your routine going forward. Perhaps it is scanning the precious metals market, or perhaps even reading the Wall Street Journal. It doesn’t really matter what it is, it could even be something as simple as the time of day you are trading. Perhaps you are trading more successfully during the European open than you are any other time of day. If that’s going to be the case, then make it part of your routine to trade that timeframe. You’ll be able to notice these small nuances easily by keeping a trade journal.
Should your routine be flexible?
I believe that every trading routine should be flexible, because after a while it may not work anymore. A routine is worthwhile as long as it is successful. If at any time you find that the routine is no longer working, don’t be afraid to change up the routine to make it more profitable.
If you ask me, life always works well when you have a routine. Whether it’s getting to your job on time, getting the kids to and from school on time or even exercising on schedule, you’ll create focus and success by building a stable routine. The same is true for your Forex trading. Make sure to look at the circumstances surrounding your trades and to build your routine accordingly. Your account will thank you.