This article is going to discuss the very important topic of prep work and how it sets the tone for the trading day.  Have you ever entered  into anything that you were not completely prepared for? How did you feel? Were you confident? Did you do well at the task you had ahead of you? My guess is that, if you were like most people, you were frustrated, on edge and feeling more stressed than usual. Why should day trading be any different?

The start of the trading day should began with a proper nights rest. Yeah, I know that sounds a little corny in an article about getting prepped for the trading day but I can’t tell you the number of times that I, for what ever reason, have come into the day less than refreshed. The day goes slow and it is hard to stay focused. And in trading, where you are up against some of the best traders in the world, it make sense to come to the table with all of your faculty’s about you.

Foreign Markets

When I first turn on my computer in the morning, the first thing I do is take a look at what the markets have done overnight. The world is now one hugh marketplace and trading can be done 24 hours a day.  Most of you have noticed how the foreign markets have been literally rocked (either up or down) by how the United States markets fared during the day. The premise is that the news that has effected our market (most recently it has been the sub-prime mortgage mess) will surely spill over into the overseas markets and visa versa. Sometimes, how the over night markets preform causes a domino effect which continues into our market. One market will be up/down and then another market starts to go up/down and so on and so forth. The process is quite interesting and for the active trader, important to observe.

Globex High/Low

The next thing to focus on is the globex high/low for the market you are trading. As the markets trade overnight, they establish an equilibrium where the overnight traders believe the value of the market is.  It is important to monitor these areas before the market opens. It is a good idea to mark these levels on your chart.

Yesterday’s High And Low

Have you ever noticed how yesterday’s high and low act as  strong support or resistance for the next day? Why? The main reason is that if those areas are breached or taken out, the trend for the day is usually established. Take a look at a day chart of any market. For the market to continue higher/lower, the previous high or low has to be taken out. Many articles and books have been written describing this relationship. There is an excellent discussion in the book “Mind Over Markets” by James F. Dalton, et el. The book describes various time frame participants, and how they determine the market equilibrium for the market they are trading. It is an interesting read  for those of you who want to know more about this predictable pattern.

First Hour High and Low

Another area the needs to be marked on your charts is the first hour high and low. These areas again will help to determine the direction of the day. If those areas are never broken during the day, some trades will not take a trade, believing that the market is not trending. One thing for sure, once those areas are broken, the market usually trends strongly in the direction of the break.

These are just some of the things that an active trader needs to pay attention to as he/she begins to prepare for the trading day. Some traders have more indicators they watch, some have less. The decision of what to watch is strictly an individual choice. Suffice to say that what ever market you trade, it is important to go into the trading day with as much information that you have available. It can mean the difference between “catching a whopper” or coming up with an empty net.