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Don Kaufman here. |
Successful trading relies on consistent preparation and a keen understanding of market dynamics. |
In today's post, I'll walk you through three essential steps I take every morning to prepare for the trading day, along with bonus tips to enhance your trading strategy. |
#1: Gauge the Pre-Market Pulse |
Before the cash opens, I take a moment to size up what's brewing in the pre-market. |
Are the S&P 500 contracts light or heavy? |
Today, the S&P was kinda meh, and that's something you shouldn't read too deeply into. |
Why? |
Because there's just not much contract size backing it up. |
Bonds, on the other hand, might be making more strategic moves—think of them as the silent players exerting more influence than the S&P right now. |
If you see bonds getting annihilated while the S&P meanders, it's a tell that traders aren't really hyped about the S&P at the moment. |
Also, pay close attention to what is happening to the Nasdaq and Dow Jones…compare movements across indices for consistencies or divergences. |
Takeaway for Beginners: Don't get swayed by low pre-market activity. Look for patterns between different indices and bonds to understand the broader market sentiment. |
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#2: Monitor Volatility Indicators |
Volatility is like the heartbeat of the market—it tells you how much life or chaos is brewing. I keep an eye on indicators like the VIX and VVIX to see if things are getting tense or calm. |
This week's looking a bit dicey with election uncertainties and geopolitical risks looming, so volatility is expected to keep us on our toes. Keep an eye out for sudden spikes in either the VIX or VVIX, as they could signal impending market turbulence. |
Definitions: |
VIX: The CBOE Volatility Index, measuring the market's expectation of 30-day volatility. VVIX: The volatility of volatility index, measuring how volatile the VIX itself is expected to be.
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Takeaway for Beginners: Understanding volatility helps you anticipate potential market swings. High volatility means bigger moves, so adjust your strategies accordingly. |
#3: Track Key Stocks and Sector Movers |
Now, let's talk about the stars of the show—stocks that make or break the market. |
Nvidia is my go-to example, with shares gaining 4.1% today. |
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Their options activity was off the charts, with a massive skew in call buying (calls outpacing puts significantly). This kind of action can drive stock movement higher, making Nvidia a beast in the Nasdaq. |
Other big players like Microsoft, Apple, and Amazon were either flat or slightly down, but Nvidia is holding the Nasdaq buoy afloat. |
Additionally, keeping tabs on sectors like financials and energy gives you a clearer picture of where the market might head. |
Takeaway for Beginners: Focus on major stocks and sectors to understand market direction. High activity in a single stock can influence entire indices (if it's big enough). |
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Bonus Tips: Stay Informed and Stay Humble |
Keep an Eye on Earnings and News: Earnings reports and unexpected news can send shockwaves through the market. Be ready to pivot your strategies based on real-time data. |
Embrace Intraday Trading: Sometimes, the magic happens within the day. Don't be afraid to make quick trades based on what the market is telling you at the moment. |
In fact, I've had plenty of success trading In/Out Spreads for quick gains. |
Understand the Bigger Picture: Always consider the broader economic indicators like interest rates and currency movements. These factors play a huge role in market dynamics. |
Remember, trading isn't about jumping on every hype or panicking over every dip. |
It's about understanding the underlying forces at play and making informed decisions. |
To your success, |
Don Kaufman |
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