How to Develop A Daily Trading Routine

How to Develop A Daily Trading Routine


Hey everyone. This is Kirk, here again at optionalpha.com. And in this video, we’re going to talk about
developing a daily trading routine. Now, it might seem odd actually to start here
in Track #3, but I believe that habits and routines are insanely important to your success,
maybe not only as a trader, but also in anything that you do in life. And it really comes down to the difference
between what to do versus actually doing it. The analogy that I use all the time when I
coach people is, “We know that to be healthy, you have to eat right, you can’t have sweets,
you have to go to the gym and workout or exercise. That’s not important. We know what to do. It’s actually doing it that actually makes
a difference. It’s going to the gym, it’s eating right,
it’s not having sweets, it’s not doing X, Y, Z. That’s the difference between being successful
and not.” And the reality is that options trading is
just a game of math. I’ve said it a million times until I’m
red in the face that it’s just a game of math and probabilities. Therefore, the only way we win long-term is
by being consistent and persistent. My two favorite words in this business is
being consistent and persistent. You have to be consistent in how you place
trades at the same probability of success level, on the right side of volatility, using
the right strategy with the right position size. And then you have to be persistent in doing
that over and over and over and over again. It’s usually not hard for people to understand
what to do, that you have to be an option seller, that you have to do X, Y, Z position
size. That’s the easy thing. The hard part is being persistent in doing
that over and over and over again. And hopefully, we can help talk you through
developing your own trading routine today that will help you get to that next level. Aristotle once said, “We are what we repeatedly
do. That excellence then is not an act, but it’s
a habit.” And I truly, truly believe this. I’m actually a big student of learning about
habits and psychology and what makes people tick and think, including myself. Now, here’s the reality though. Our brains cannot actually distinguish between
good or bad habits. Most people don’t know that. Most people think that it’s some psychological
thing that, “Oh, it’s just a habit that I smoke or that I do something.” It’s not that. Your brain has no ability to distinguish between
habits. All it’s trying to do is use up as much
energy or use as little energy as possible to complete outcomes. Now, you have to forcefully create different
habit loops if you want to change your outcome or your circumstances. And it basically works like this and all habits
work in this 3-part reward or habit loop cycle. The first thing that starts off this habit
loop is the cue. Now, the cue is everything that the brain
uses to automatically trigger a series of events, so like you don’t actually think
about in the morning maybe necessarily brushing your teeth and the actual brushstrokes that
you have and brushing your back teeth and then your front teeth or whatever. You don’t think about. That’s the routine. That’s the physical or mental or emotional
sequence of events that your brain has automatically done. But it only does that after it’s been cued
to do something. For example, your routine of brushing your
teeth might come after you wake up in the morning or after you eat breakfast or whatever
the case is, or routine of going and checking your email in the morning might come when
you turn on your phone. It doesn’t really matter. What you have to understand is that the most
important aspect of this entire loop is understanding what your cue is. What is the thing that makes you do whatever
you do? As a trader, some of these cues might be a
drop in the market or a position going bad or some earnings announcement. A drop in the market might cue you into a
routine because you’re so used to it of not doing anything, of selling your positions,
of getting out, of going in cash or a million different other things. But the cue is what you have to understand,
is that the drop in the market might have been your cue. That’s what you historically use to then
develop this routine of doing whatever you do that maybe doesn’t work. That’s why you’re here at Option Alpha. You have to understand this cue and routine
process. The last thing that you have to understand
is that everything has a reward at the end of it. This is what your brain is telling you. This is why it’s worth the routine. This is the endgame and your brain or your
emotions have to have some sort of reward. And it doesn’t have to be monetary, but it
can be a feeling that you have or an emotional response or something like that. To use that brushing our teeth example – If
we wake up in the morning, that’s our cue to brush out teeth, we go through the routine
of brushing our teeth, our reward is that we feel good that our teeth and mouth feel
clean, that we smile, that we don’t have that film on our teeth. That’s the reward. If you’re a trader and the market drops
and that’s your cue to then sell all of your positions, well then your reward is comfort
or is some sort of emotional response that you are comfortable because now you’ve done
something and you’ve acted on it. It may not have been the right thing, but
your reward might not have been monetary in this case, but it may have been some comfort
or emotional response that you’re now feeling safe or steady or secure or something like
that. You have to understand how these things work
and realize that options trading is just a game of math and that if we can control our
habits and our routines with how we place trades, manage trades and execute trades,
then we can really predict the outcome that we want as far as monetary or quitting your
job or whatever you want to do at the end of the day. That’s the important thing. Now, make no mistake though. Everything you have either done or haven’t
done in your life can likely be traced back to some habit or routine. Your brain doesn’t distinguish between good
or bad, so if you’ve done something bad in your life or you haven’t done something
that you wanted to do, it’s likely because you haven’t developed the habit or the routine
to do it. And it’s no different when it comes to options
trading, investing, whatever you want to call it that we’re trying to teach you how to
do here. Now, the good news is that you can recognize
and change it. That’s really good. The bad news is yeah, it takes a lot of hard
work and it’s tough. This is something that most people don’t want
to do because they realize it takes a lot of work. It’s not easy to understand how options
work. It’s not easy to go into the market every
single day and look for trades. But the reward is worth it at the end of the
day when you can control your own portfolio, when you’re not dependent upon the market
moving up just to make money, when you can generate a consistent stream of income with
your options trading on a limited amount of capital. It is worth in my opinion, the work and the
hard effort that you have to put into, but you do have to recognize and change some of
the habits that you’re currently in right now. Now, I’m not saying that my routine that we’re
going to talk about is the perfect example. It’s what has worked for me and hopefully,
it gets you thinking a little bit more about your own trading routine. Now, the first thing that we’re going to
do here is talk about my routine in the morning. Now, I can tell you honestly that this entire
routine that we’re going to talk about from basically step #1 or the first thing that
I do, all the way to the 5th thing that I do basically takes no more than maybe 15,
20 minutes at the most. That’s about as close to or sort of a timeframe
as I can possibly make, about 15 to 20 minutes to go through steps 1 through 7. And the whole idea here is that you’re developing
cues and habits of sequential sequences or processes that you go through. And this is just an example and I want to
lay this out for you, so that you can start to develop your own because likely, what you’re
doing right now is maybe a little scattered. You might have your own routine about what
you do, but it might be a little bit scattered. You can probably hone in and focus in on a
more efficient process. The first thing that I do in the morning right
away is check futures. Now, this is where I want to see where the
market is likely to open. Is it higher, lower or the same as yesterday? Now, when I say the first thing I do in the
morning, this is not the first thing I do when I wake up. The first thing I do when I wake up is get
my kids up, get my wife up, sit and have coffee, talk with them, go through the day, to plan
our day, whatever, have breakfast, whatever you do in the morning. I do not wake up and check markets. That’s crazy. I don’t wake up and then check markets. But about 15 minutes before the market opens,
I’ll check futures. That’s when my day really starts. The second thing that I’ll do is I’ll
quickly scan the headlines. Now, this is important. I’m not reading the news. I’m scanning the headlines because I want
to see what are the major news stories driving the market. Did someone get bought out? Did someone file for bankruptcy? Did two companies merge? Is some company accused of insider trading
or fraud or accounting or did some company buy a new product or get a new endorsement? What is really moving the market? What do I need to be concerned about or aware
of as I enter the trading day? Because it’s not that I have to be necessarily
attached to that new story and know exactly what’s happening, but if I know that somebody
basically got bought out or went bankrupt, maybe I might know how that might affect my
portfolio. The third thing that I do after I’ve looked
at the futures, checked and scanned the headlines which can literally take 3 minutes or less,
is look at the impact of whatever I’ve just learned on my portfolio or on individual positions. If for example some company goes bankrupt
or gets bought out or merged or whatever the case is and I have a position in there, I
should probably know that that’s happening. And that can be as simple as just scanning
the headlines and knowing what’s going on. But it’s also important to know – How does
all this stuff impact my portfolio? Is my portfolio balanced, meaning that if
the market opens up higher, then that’s still good for my portfolio or maybe my portfolio
is a little too bearish right now, I’ve got too many bearish positions, so if the
market opens up higher, that’s maybe a bad thing and I need to start thinking about that? It’s just asking yourself what is the impact
on your portfolio. Most of the time for what we do here since
we’re neutral traders and we have a neutral portfolio, if the market opens up 1% or 2%
higher in either direction, it’s not going to dramatically impact our portfolio. And as long as we don’t see a huge pop in
the market or a huge drop, we’re going to be in good shape to move forward. And that’s some of the things that we’ll
talk about as we get further through Track #3 here. The fourth thing that I look at is my trade
hierarchy. And I look at trades and positions in this
order and that is closing positions first, then adjustments, then new trade entries. And it’s in that order for a reason. This is usually now after the market has opened
up, maybe 30 minutes after the markets opened up or 15 minutes after the markets opened
up. I first am going to look at which positions
can I take off, so which positions have now reached a profit target or at an acceptable
level that I feel like I can take those trades off. I’m first going to bank some profits and
clear positions that need to be cleared off if there are any, then I will look at adjustments
to any trades that might need adjustment. Now, hopefully I’ve already had trades on
the horizon that I know are starting to go against me or that started to move against
me, then I’ll start looking at adjusting those trades and I’ll work through adjusting
those trades quickly. I’ll quickly close trades then I’ll quickly
go through and adjust any trades that need to be adjusted. And usually if we’re making adjustments,
it’s already something that we’ve been thinking about and looking at. And then finally, we’re going to look at new
trade entries. And the reason that we look at new trade entries
last is we want to see what the impact of closing and/or adjusting other trades first
has on our overall portfolio, so now we get a clear picture of where we are at the current
moment moving forward and what new trades we should be looking for. Should we be looking for new bullish trades,
new bearish trades, some strangles, some straddles, iron condors, credit spreads, calendars? What should we be looking for now that we’ve
closed out things that are profitable, now that we’ve adjusted things that might be
going against us? This is what we can be focusing on. That’s why in my case, that’s the trading
hierarchy because it forces me then before I look at new trades to check my overall portfolio
balance and Beta weight it. Number five or the fifth thing that we do
is walk away. Now, I can tell you right now that you have
to get up and walk away from the computer. You’ve got to find something to do, you’ve
got to schedule it now or you’ll never cut the cord. Now, some of you out there that are watching
this video know exactly who I’m talking about because you love looking at the markets all
day. But the reality is that the more you look
at the markets, the more you “see things that aren’t really there.” And we all know we’ve done this before,
myself included. In my case, what I do is I get up and I go
play with my kids or I go on a walk with my wife or we go to the gym in the morning. More often than not, we’ll usually schedule
time to go to the gym around 10:00, 10:30. That forces me to get up and go away from
my office, away from the computer, away from the markets. And for me because I love the market so much,
because I love trading so much, I love doing this, I have to have something that forces
me to get away, that is on my calendar as something I need to do a priority and that’s
my cue to then develop a new routine to get away from the markets. I think that’s really, really important. Now, the sixth thing that we do and the last
thing that we do in our routine or I do in my routine is my end of the day review or
EOD review. And I can tell you this honestly. Most of the time that the markets are open,
I’m not watching, I don’t care. We are not day-traders. I don’t care if the market is up 10 points
and then down 10 points. I just don’t care because at the end of
the day, it’s a game of numbers. What I do is once I’ve made my trades in the
morning, do what works around my schedule with my kids and my wife, then I will come
back in later at the end of the day, usually 45 minutes to an hour before the close of
the day and basically ask myself a couple of questions like, “What’s changed during
the day? What’s changed from the morning to the afternoon?” I don’t have to watch the market all day
to see what’s changed. I can see if the markets rallied or maybe
not rally or rallied early and then it fell or whatever the case is. What’s moving? What’s moving late in the day? Is there anything that is new that we could
be trading? Did implied volatility pop in something that
could create a trading opportunity? I can adjust my order. Any orders that I had placed earlier in the
day to enter a new position or close a position or adjust the position, I can tweak or adjust
those orders if needed. I can look at new trades and I could look
at new exits because sometimes there’ll be an opportunity that’ll come up in the
afternoon that wasn’t there in the morning. And likewise, you might have an opportunity
to close a trade in the afternoon that wasn’t an opportunity in the morning. Now, the whole process here is to be in, make
some changes, make some adjustments, some trades, whatever you need to do and then get
out of the markets. Not get out of your trades, but get out in
front of your screen or logout of your broker platform, whatever you need to do to get out
of being in this routine of being sucked to the screen and our eyeballs glued to each
and every chart. In my personal opinion, I think that I do
this well because I setup time in the morning to go through my trades and my positions and
then I get away from the computer by going to the gym or going on a walk with my wife
or going to the park with my kids or whatever the case is, and then in the afternoon, I
forcefully come in before the close of the day, so that the close of the day becomes
my ending time for the markets or even earlier if I don’t need to do anything. Here’s the deal. I realized that if I get too emotional and
attached, I’ll make stupid decisions and that’s just the reality. I’m self-aware in that sense and I know that
if I get too emotional or attached to the markets, I’m just going to make really,
really bad trading decisions. I deliberately limit my analysis and trading
time to force myself into rational, habit-based, non-emotional decisions. And I feel like most successful traders can
tell you that this is exactly how they work as well. It all has to be rational, habit-based. You got to do the consistent things that we
talk about, high probability trades, low order size, etcetera, etcetera, great pricing, etcetera,
etcetera. Now, if you are currently working full-time,
you actually have a huge advantage because your job will force you to make efficient
decisions quickly. And frankly speaking, there is no excuse why
you can’t be successful working full-time. I basically work full-time as a dad and running
this website, coaching people and doing software updates and writing articles and doing videos
like this. I do not spend the full amount of time that
I have in the day actually trading. Selfishly like I’ve said, this is also one
of the reasons why I run this website because it keeps me occupied helping others which
I love to do. Otherwise, I would just be staring at charts
all day long until I saw what I wanted to see. And again, do whatever you want to do, have
something that you like to do, have a hobby that you like to do. You do not need to be at this misconception
that’s out there that you have to be staring at the screens all day and you have to understand
every little movement in the market. You don’t. It’s just a numbers and probability game. And you have to actually develop a habit to
keep yourself away from the market because as traders, we’re tied to the market, we’re
attracted to it, we love it. You have to develop a habit to get away from
it. Again, try to remember cue routine and reward
cycle or this habit loop because it’s really, really important to understand what has gotten
you into the routines that you’re in right now and how you can change those. Try different cues in the morning. Try using my process. Use a kitchen timer to time the amount of
minutes that you have to analyze the markets. You know what I mean? Just give yourself 10 minutes and then turn
off your computer or whatever the case is. But you got to try something different to
get into a new routine. In my opinion, I think the best traders that
are out there have very efficient routines to keep themselves rational and math-based
in their approach. And they don’t really care where the markets
go as long as they’re making money because their portfolio is neutral and their position
sizes are small. That’s what I think is really, really important
as you start to develop your own trading routine and daily routine. As always, I want to thank you for checking
out this video, for watching. If you have any comments or feedback, I’d
love to hear them, especially as we get further into Track #3 here. If you loved this video and thought it was
helpful, thought it gave you a little bit of insight into how you can become a better
trader, please let us know, share this video online with your friends and family. And as always, happy trading!

5 thoughts on “How to Develop A Daily Trading Routine”

  1. Which one of your videos do you show your text conversation with broker to negotiate lower commission fees? Thanks

  2. Can you please list out couple of website sources that you scan daily news for investor? I have CNBC but those news are not to the central points. I'm looking for a better headlines and news like you mention. Thanks in advance

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