Jeff Kohler the Option Addict | Stock and Options Trading

All good traders need to have a routine that they follow. Have you created your daily/weekly routine yet? Have you chiseled down to a 20 minute per day workout? Is that even possible?

Let's talk about what a routine should address. Here are the main objectives:

Market Analysis

Find new trades

Manage existing trades

Lunch

Update/Purge List

Revisit Stops & Position Size

Market Review

I am sure most of you already have a certain outline you follow each day, but are you efficient with it? Are you spending more time than you need to? Some spend hours per day, which is fine if you are willing, but I spend very little time in my actual routine, the rest of the time is just watching the market.

Let me give you an outline of what my week looks like. Monday morning I stagger into work for an a.m. presentation. Before I begin I read the headlines of what will affect the market today as well as take a look at futures pricing to get an idea of how the market will open and how bull/bear things look. After I get my feel for market direction, I search. I look through my watchlist (which contains around 1700-1800 stocks) to find patterns. Before you send an e-mail asking about why I watch so many, what kind of stocks are they, etc... let me explain that they are totally random stocks, and I watch this many just to look for patterns (triangles, flags, pennants, etc). I like being able to look at thumbnails (lots of them) since I can get through them quickly. As a short term trader, most of you know I can care less about the fundamentals, industry groups, etc since I am so short term minded.

Back to the routine, I search through these lists which takes about 25 minutes. I write down the symbols that contain potential patterns to watch for breakouts. Since these stocks could take forever to break out, I go run a few of my favorite searches to find things to trade asap. Here are the searches I run...

Anticipating the Bounce

Bullish trending stocks that might be bouncing off support

Anticipating the Bounce II

Bearish trending stocks that might be bouncing off resistance

Downtrending Stocks with a High MACD

Bearish trending stocks that might be bouncing off resistance

Searching for a Bullish Breakout

Bullish trending stocks that might be breaking out into new highs

This is where I generate most of my trades for the week. The list of patterns I found from my watchlist are the ones I actually "watch" for breakouts and trade those as soon as I get the signals.

When the market opens, I watch my existing positions to see what their reaction is. Mostly out of curiosity since I don't place very many trades until the market is nearing the closing bell. I can see what the movements are to check exits and revise my positions if need be.

If I see any opportunities after the open that I need to be a part of, I will enter them as I see fit, but after this, all is quiet until after lunch. I have everything up on the computer, but I just watch the tides roll in and out until later in the day.

Lunch comes next. I would normally talk in lengthy and specific detail on this topic alone for all those who submitted on my poll that they would prefer to read less of my personal stuff (such as lunch), and just get more trades. However, since I have plenty of things to do today, I will reserve the effort.

As the end of the day rolls around, 2:30 - 4:00 Eastern specifically, this is when I am pretty busy. Having watched the tides over and over throughout the day, I am like Tom Hanks in the movie Cast Away....just waiting for the right wave and I take the trade. I get into everything I am going to get into for the day, close any positions that need a close, and watch the market go to sleep.

After the close, I will review the news, price action, or anything that might cause the ship to steer off course. I revisit all my exits to see what I need to pay attention to, or movements that need to have an exit tightened to lock in a few profits. If I do tighten up any exits, this is when I normally add to a position and buy more contracts while still risking the proper position size.

This is what the routine will look like for each day of the week. The watchlists only get reviewed once a week, and searches might only be run once, maybe twice a week depending on how many trades I am watching. As the week goes on, I am also subtracting stocks off my list for breakouts. Many will fail before giving a signal, so these get crossed off when applicable.

That is what my routine looks like. It does not take a whole lot of time, and for me it feels very efficient. It offers plenty of time to walk away for extended periods of time, answer e-mails, post to this blog, etc. I had a few questions on this topic over the weekend, so here is a look at how I get things done. I will be back in a while.

Posted by Option Addict on 11/06/2006 at 9:45 AM | Permalink

Archives

Hi Jeff,

Can you please elaborate more on how you read the futures and how important it is to impact your views on market?

Thanks very much!

Yong

Posted by Anonymous | 11/06/2006 12:44:00 PM

Thank-you for this post.

Duane

Posted by Anonymous | 11/06/2006 01:17:00 PM

Jeff,

I enjoy all of your posts, but these are the ones that rock. thank you for letting us see what you do.

I would like to know what your routine is for evaluating trades. Do you do a lot of mathematical calculations, or do you just quickly check the implied volatility and earnings dates before entering a trade?

I'm curious if I need to paying attention to a lot more than I have been.

Also, as is customary for me, here are some trades I took today. I am aware that there were just shy of a million breakouts, but here were some good ones I'd like to share:

EAT - flag breakout on strong volume. Roughly a $6 move depending on how you measure it.

BIG - i love this one. earnings are only 10 days away, but a nice ascending triangle breakout on a $21.50 stock on MASSIVE volume.

CAL - nice diagonal trendline bounce on a solid stock.

PTR - Huge 6-month symmetrical triangle break today with a serious $33 expected move! Been waiting a while for the break and it came today, but beware of the light volume. Risk/rewardwise you won't find a better trade.

PLCM - like the ascending triangle break also on light volume though.

I want to point out that several trades I've passed on due to lack of strong volume turned out to be phenomenal, so I've changed my personal rule to this: When you can get in close to your perceived support and your target is a good one, take the risk. Here, you're looking at a $3 move on a $27.50 stock which is over 10% and your exit is only 50 cents away.

Good luck!

Posted by Anonymous | 11/06/2006 02:21:00 PM

Brett, what searches do you use
to find these plays.

Posted by Anonymous | 11/06/2006 02:44:00 PM

A while back, i took Jeff's cue and began building watchlists. I organize mine by sector (industrial, retail, tech, health care, real estate/homebuilders, etc.). I continuously update them by using turbo searches and also the searches jeff outlined above. The more stocks you have in your watchlists, the more patterns you are able to trade, and also, if there's a hot or cold sector, I can jump quickly into that watchlist to spot some opportunites.

The ones i traded today just happened to be in my watchlists and i spotted the opportunites over the weekend.

Hope this helps!

Posted by Anonymous | 11/06/2006 02:54:00 PM

thanks, it does

Posted by Anonymous | 11/06/2006 03:58:00 PM

Brett,
Do you create your Sector watchlist in both the thumbnail and interactive charts? This is a great idea to save time. Thanks, Tim

Posted by Anonymous | 11/06/2006 07:18:00 PM

Brett,
To coin a phrase from "Rudy" the stocks you posted " ...are the most beatiful sight these eyes have seen".

Try

COLM, retail sector with a nice support bounce.

DSL, Sym triang waiting.

Thanks for the ideas.

Brian K

Posted by Anonymous | 11/06/2006 08:13:00 PM

Jeff,

In your Routine statement you said, "If I do tighten up any exits, this is when I normally add to a position and buy more contracts while still risking the proper position size." What does this mean?

Thanks, Tim

Posted by Anonymous | 11/07/2006 06:11:00 AM

Jeff, when you are watching the "futures", are you looking at things such as oil, e-minis, indicies? Also, could you explain more about the "futures" -- I've noticed that the banner on CNBC reflects the "futures" price and then also gives "fair value". What should we be paying attention to? As always, thanks for sharing. Karen

Posted by Anonymous | 11/07/2006 07:09:00 PM

Jeff, Brett, et al,

One thing that's escaping me is a feel for when to enter/exit trades late in the trading day and under what circumstances it would be reasonable to trade earlier in the day.

Brett, thanks for the post on waiting until later in the day (when institutional money generally trades). As a summary, you said, "You MUST have the patience to let most of a day's trading pass by before making decisions. Breakouts often fail, selloffs often reverse, and you will lose if you don't let it sort itself out."

Can anyone describe circumstances where they would take trades earlier in the day and why?

Many thanks,

Mike

Posted by Anonymous | 11/07/2006 08:17:00 PM