Category Archives: market correlation

When to Avoid Trading

When to avoid trading

bear bull stock marketThere are certain times of the day that a day trader should not have a position in the market. These are times when the market is exhibiting unusually high volatility that is either due to the time of day or because the market is digesting information.

Either way, these periods tend to create heavy levels of volatility that can cause the market to create random price swings that can create unnecessary risk to your position.

Many traders like trading during these times specifically because the market exhibits such volatility, but the direction of the volatility is highly unpredictable so in effect the trader is gambling that the report or announcement will be in the same alignment as his position.

I highly discourage anyone to trade this way, it is extremely risky and it’s pure gambling on the outcome of the report and how the markets interpretation of the report at that particular moment.

Some traders rationalize this as a trading strategy, however since the information being released is completely unknown and more importantly the reaction to such information is even more random than the information itself, it is the same thing as going to a casino and trying to figure out if a roll on roulette will be red or black.

Most professional traders avoid having an open position either 5 minutes before or seven minutes after any major fundamental news and announcement report is released, this is called the 5 minute trading ban.

Most fundamental reports tend to be released at the same day of the week and generally at the same time each week or month.

The quickest way to find out if there is a report or announcement that will be released later in the day is to turn on CNBC for about 15 minutes before the opening bell.

The financial news station usually announces through out the day when what report is scheduled to come out and what time the report is scheduled to be released.

Another way to find out if there is an economic report or announcement that is scheduled to come out later in the day or the week is to go to econoday.com.

You can see a full calendar of all the scheduled fundamental news reports and announcements that are scheduled weeks in advance on this website.

There is the economic calendar section that you can go to from the home page. Once you click on the calendar, you may see a red star next to a particular report; if the red star is present it’s considered a market moving announcement.

Emotional Triggers for Trading Stocks and Futures

Trading Psychology Can Impact Your Trading Significantly

day trade strategiesYou can’t completely eliminate stress from your life, but you can control how much it affects you. Relaxation techniques such as yoga, meditation, and deep breathing activate the body’s relaxation response, a state of restfulness that is the opposite of the stress response. When practiced regularly, these activities lead to a reduction in your everyday stress levels and a boost in your feelings of joy and serenity. They also increase your ability to stay calm and collected under pressure. I personally control my stress by taking a 1 hour walk after every trading session and try to go hiking at least once per week. I find this very helpful in reducing stress levels on a regular basis.

Learn quick stress relief

Everybody has the power to reduce the impact of  trading stress as it’s happening in that moment. With practice, you can learn to spot trading stressors and stay in control when the pressure builds. Sensory stress-busting techniques for professional traders can give you a powerful tool for staying clear-headed and in control in the middle of stressful situations. They give you the confidence to face challenges, knowing that you have the ability to rapidly bring yourself back into balance

Emotional triggers

stock day tradingEmotional Self-Awareness is being aware of “what” you’re feelings are; not “how” you are feeling. Identifying people, things and events that trigger your emotions whether positive or negative is a first step to becoming emotionally self-aware. Following the simple steps below will help you identify your emotional triggers and enable you to think more clearly during emotionally charged situations.

The first step is to understand that you are responding to the primal “fight or flight” reaction when you are faced with a physical or psychological threat. It’s easy to see that negative emotions can result from physical threats, but there are also psychological threats that can trigger negative emotions.

Learning to control emotions while trading is one of the most important things you can learn when trading commodities and futures contracts. 

Thousands of years ago our emotional triggers were more likely comprised of physical threats our daily goal was to survive predators and hunt to survive. Today it’s safe to say that our hot buttons are typically psychological threats, these are more difficult to deal with because unlike a bear or a bore chasing you the threat is not visible.

When your brain perceives that someone has taken or plans to take one of these things away from you, then your emotions are triggered. Some of these needs will be important to you. Others will hold no emotional charge for you. Be honest with yourself. Which of these needs, when not met, will likely trigger a reaction in you? Identify the needs that you hold most personal to you.

More Trading Psychology for Futures and Stock Market

Impact of Trading Psychology On Futures Trading and Investing

stocksAccording to scientific research, a person’s perceived control over the outcome of a specific situation or event is the largest factor in psychological stress. While, people in reality have a lot less control over their life than they really lead themselves to believe, most people psychologically believe that they control much of what happens to them. The spouse of a trader has no control over markets, trading results, or monthly income and is forced to accept this truth.

Since most traders even those who have been in the business for decades have good months and bad months, the stress that the spouse experiences may often times come out and cause tension between members of the household. Many times I’ve heard from traders who dread coming home after a losing day, fearing accusations and negativity from a stressed-out partner.

To solve this problem, the futures or commodity trader needs to take responsibility for these perceptions and do everything possible to make their spouse feel secure about the family’s financial future. The best way to deal with this problem is head on, this will relieve the largest portion of the stress. When the spouse sees that you are concerned about the same issue they will feel more relaxed and calm knowing that you are aware of how they feel, this is the first step.

The second part is creating a budget and the discipline to follow it so that during loosing periods and winning periods the spending is about equal. What many traders do is set aside a portion of their monthly income into a special account.

traders financialThis account becomes a back up fund, when a losing month occurs; the trader takes the difference that was lost from the backup fund and when the trader has a winning streak he puts a percentage of his winnings back into the fund. This way the trader brings home a consistent flow of income, something that makes it easier for the spouse to budget and plan; this creates more certainty and predictability about the future and will help your spouse relieve stress and feel more confident

Many people in creative businesses such as art and entertainment who do not have consistent monthly income create backup accounts to help create consistency and predictability during slow times in their careers.

The second biggest reason for disharmony between traders and family member is loss of common interests. Believe it or not as simple as it sounds, trading can be very emotionally absorbing. Most traders, especially successful ones have a high degree of concentration and focus and are constantly absorbed by markets. It creates problems precisely because the absorption in trading prevents the trader from fully participating as a partner and parent. Over time, that can only lead to conflict and resentment. It is in such a situation that spouses then find it difficult to be supportive of their partner’s needs and challenges.

When to Initiate trading Positions

stock marketThe website even has a section that defines each type of report and gives you basic information so you understand what the report is based on. There’s even a subscription options where you can get weekly economic updates and schedule Emailed to you at no cost. You can specify if you are interested in global information or only US economic news.

What most professional traders do is simply wait till after the report to start initiating positions, if the report is scheduled for morning release. If there is an existing position, the position is usually liquidated and reinstated after 5 minutes have passed from the times the news was released; this provides the market with adequate time to digest the information and price it into the market.

The only other situation which you should apply the seven minute trading ban rule to is during quarterly earnings season and only when the top 10 stocks that make up the index are due to be released.

You should have a list of the top 10 stocks that make up each of the E-mini’s on the Globex and the Russell 2000 on the Ice and have these stocks on your radar at all times. Each of the indexes is highly influenced by the movement of the top companies within each index; these companies are the biggest movers within the index. Therefore it’s imperative that you keep an eye on the long term, midterm and short term direction of these stocks, in addition to knowing exactly what day and time of day their earnings are going to be releases.

There are two things to keep in mind, the first one is stocks earnings generally come out after the closing bell, but there are exceptions. You should always check ahead of time so you know the earnings schedule for each of these securities.

The second thing to keep in mind is the stocks that make up the index do change from time to time. It doesn’t happen very often but it happens often enough that you need to check the index annually to make sure the stocks that make up the top 10 are still the same.