Monday, May 10, 2010

Do You Have A Checklist??? Never Too Late To Make One!!!

I recently read a book review by Dr Alexander Elder, of a book by Atul Gawande, titled The Checklist Manifesto, and decided to buy a copy for myself. It’s well written and makes a pretty light reading. The book deals with the concept of making or rather having checklists for works to be done. It journeys into introduction of checklists, in aviation industry(You are safe in the air coz your pilot has A CHECKLIST), as early as early as 1930’s. It also delves into how the checklists when introduced to construction, have resulted in safe buildings and very importantly checklists introduced into health care have drastically reduced accidents and errors in operating room and also have resulted in less post operative complications.

Why am I talking about the book, because like Dr Alexander Elder, I also believe that traders especially intra players need to have some sort of checklists, to avoid them for turning into trigger happy Johnny’s! In fact many must be already having there lil checklists, some written and some mentally stored. Some in form of spreadsheets and rulez they follow, nevertheless we will discuss here how a basic checklist should be like. Now before I proceed, let me inform you that most of the stuff I am putting forth, I have picked up from different people whose trading has influenced me. I also believe that by the time you are done with your checklist, it will be unique to your trading style and personality, but the goal remains the same for every one-“Not to loose Money”!

Ok we all know that you keep a tab on global markets and some broader news items on Bloomberg, but when it comes to opening bell what would you do….well you would observe the open and then subject it to the following checklist and hope you arrive at a sane decision. We will concentrate more on two scenarios, where at the opening the OPEN LOW or the OPEN HIGH are same, as both these scenarios give pretty good intraday trades!

If Open High is same
If OH is below the Daily Pivot or S1 Or S2
More Negative
If OH is below the breakdown level of some Pattern Play/MA/Trend line
More Negative

In the above scenario one can go short with the Stop at OH. Adherence to the Stop is a MUST. If the price is hesitant to fall and takes out the OH, then it becomes more potent for a powerful move on the upside!

If Open Low is same
If OL is above the Daily Pivot or R1 Or R2
More Positive
If OL is above the breakout level of some Pattern Play/MA/Trend line
More Positive

In the above situation a long trade can be taken with the OL as the Stop. Similarly to the OH scenario, here also, if the price cuts below the OL it makes the scrip an ideal candidate for stop and reverse to short for a powerful down move.

A few more pointers to look into;

Price trading above/below the ATP

Volumes Increase with Increase/Decrease in Price
Most Active Calls/Puts

This is not THE LIST but something you can work on and refine and improve. Similarly you can have a checklist in case of GAP openings! Always remember that you can make the best practical checklist but what’s important is that you follow it. You must have the patience (a whole lot of patience) to wait for your trades to materialize and the tons of conviction to carry them through. It’s easy to have the conviction if you are loyal (fiercely loyal to your STOPS)!


prajee said...

Hai manoj
Good checklist for day traders. I need one clarification. After the opening bell how much time you normally take for the opening range break out.

Tryin2Trade said...

Prajee Hi

For ORB it practically depends upon your appetite for destruction :-)

Some ppl like to play 5 mins ORB...some 15 mins or 30 mins and some safe players swear by hourly range...

Take your pick....!!!


mok 11852206222016240633 said...

hi manoj,

as usual a great post from you...
with regards

Tryin2Trade said...

Hey Mok