Many traders talk about the importance of creating a trading routine. This routine helps you to review the overall markets, find good trades, and maximize your trading potential. But how often have you considered the influence of time before placing a specific trading strategy?
It is important to be aware of how the market is influenced by day and time as it impacts all types of trading styles and trading instruments. This can be the difference between a profitable or losing trade. Regardless of how or what you trade, you must be aware of how time influences your trades.
1. BE AWARE OF TRADING DAYS WITH EVENTS THAT MIGHT INFLUENCE YOUR STOCK PICKS
The markets will react differently on days when there are news events. Whether these events are rollover, earnings or news releases, every trader must be aware of what day and what time these events are happening because these events will influence a stocks activity. A trade which might typically be a conservative trade can quickly blow through your trading assumptions because of these events.
Now we can never predict any surprise announcements that may occur, but you do need to have a plan to determine if you will trade on days when there are events. Chances are you will trade using a different strategy on days when there are news events. Decide for yourself whether you want to trade a specific stock on the same day that there is news, or the same time as the news. Regardless of whether you trade the news events or not, every trader should be aware that the stock will behave differently depending on whether there is news that might impact that stock that day.
2. HOW MANY DAYS TIL EXPIRY?
This tip is specifically related to trading options. Since all options expire worthless, it’s important that your expected assumption or move will happen within the timeframe of your option. Before you place your options trade consider not only the direction you think the market is moving, but how quickly you think it will move to your target and the theta.
A hard lesson to learn when trading is that even if your trading assumption is correct, if it doesn’t move within the timeframe of the option you traded, you can still lose money. At the end of your expiry you will have to consider rolling the option or letting it go. Make sure when you are deciding to place a trade in options that you are aware of how long you think your trading assumption will take to meet your targets.
3. TIME DURING THE DAY
I often get asked what time of the day I trade. The nice thing about futures is that there is a market that can be traded almost 24 hours a day, five days per week. This flexibility sounds great, and it is nice to trade at all hours of the day if you would like, but it is important to be aware that the markets will react differently when there are more or fewer people trading. Trading volume will influence how quickly your trades get filled. A trading set up that behaves one way during the hours of the U.S. market open might take longer when you apply the same strategy to the euro pre-market. Volume will influence how quickly the market moves so you might need to consider more patience or time in different markets at different times.
TIME IS KEY INGREDIENT
Of course there are many more complicated time considerations when you trade. Regardless of the complexity, remember that time must be part of your considerations when you are forming your trading assumption. Being aware of how time influences news events, days until expiry, and trading volume are three good foundational pieces that must be incorporated in to your trading plan. Time will influence your trading potential.
