Daily Worksheet Tutorial

Each day prior to market open every member of our trading team creates a sheet comprised of 5 main sections which we we work directly from during the trading session. One sheet from our team is posted on the portion of the blog visible to the public each day – usually RG’s version. These sheets contain everything we need to know to execute the plan for the day. This is “it” as they say – our entire game plan including our directional biases, sentiment, news reactions/anticipations, ALL potential trades, our favorite & least favorite spots, caution flags, etc. This is the EXACT sheet we all use and trade from ourselves each day. Nothing is added or omitted. We archive and study them in the same way we advocate you should. This blog functions as our communication vehicle for this information amongst each other and we have just made a portion of it visible to the public. The team compares them and tends to end up trading the stuff we all agree on.

Though we have just recently made the catalogue of daily plan sheets and post trading journals public, it is already a vast resource which can be used by any trader to greatly enhance his or her skill – especially through utilization of market playback. If you are a Premium Member, you get to view this prior to the open every day. If not, you get access to the exact same information except it won’t be visible until after the close. Either way, you will find them in the main blog by date and titled “Daily Worksheet”.  We snap an image of the sheet and attach it to the post. To view full size, click the thumbnail. You will also note we upload an image of recent volume profiles as a companion. What follows is an example of what the sheet looks like all together with actual entries, along with an explanation of each section in detail. But before we get into each section consider what we think is the most valuable information we share…

The Comments:

-Each broad section in the worksheet contains one or more comment fields. These may be the most important part of the sheet and actually the impetus for this blog. We find that writing down trade ideas, instincts, gut feelings, etc. REALLY helps solidify the trading plan for the session. Furthermore, the simple act of knowing that others will read it forces you to consider what you write more carefully.  The individual comment sections for each level as well as the comments on the trade list that truly reveal our thoughts for the day. Don’t just trade every rejection level but instead really try to get a sense through the comments and commentary where we see strength/weakness and the best opportunities.

-Whether you pick up ours at the end of the day, or you happen to be one of the pre-market members, you will notice that the important clues about which levels are more or less likely to hold, where we will proceed with extra caution, and overall macro pressures interacting with some of the levels end up being what determines success or failure on most of the trades. Remember, trading is gambling and you are simply choosing one side of a binary proposition - like a coin flip. If you take out costs of trading you are left with a default even money proposition. What determines consistent success is your edge. Your edge comes from the way you interpret what is more or less likely to occur at a level along with analysis of order flow right at the actual moment of trading.

-The levels we are providing ARE where the most contention between buyers and sellers is likely to be. They come from actual trading and they don’t lie like indicators all trying to predict future behavior using time based analysis of the past. There is no time basis to our levels. Just how much traded at that price the last time the market was there. But this is also why we keep saying that our trading methodology isn’t a system and you have to stop trying to turn everything into one. Our trading works BECAUSE it isn’t a system. Here is an example: Let’s say 1178 is an interim high and also the daily R1 and an acceptance and rejection area respectively on two previous days. Will this area be important? Of course. No-brainer. But will you short a move up to it, or look to trade a breakout above it? This is where our (or your) commentary comes in. What is going on in the world, news, correlated markets, volume, weather, holiday schedule, etc.? Your best guess as to how this all fits together is how you will hypothesize what you expect will happen and decide what you will do when price gets there. Then you will carefully watch order flow and if it confirms what you expect trade in your chosen direction. It is really quite elegant and simple. But you have to pick a side and have an opinion.

Sentiment Section:

-This section contains a few key items we use for handicapping reaction at key levels. Since our trading is very short term, we are only concerned with what was happening yesterday and what happened in the overnight/morning Globex section ahead of the open. In a nutshell we are looking for clues related to volume and whether that volume was long or short. By further breaking it down by broad market and institutional participation we can factor this information into our decision making process for the day.

-We do NOT make attempt nor care to predict direction, but rather to have a sense of what the general pressures on the market are in order to determine the likelihood a key level we are trading will hold or fail. Our analysis here is based 100% on volume, market internals & discretion, not rigid patterns.

-It is broken down by daily and overnight volume with an assessment of how MUCH volume in that direction there is relative to what is typical for the period. In addition, the delta analysis shows the differences that sometimes arise between the overall market direction and where the trading is. This is further broken down to show differences between the broad market and institutional traders. The idea being that we can assess the overall commitment of traders which if significant will place upward or downward pressures on the market at key levels.

-For example, if overnight volume was to the short side and the institutional order shorts represented 70% of their portion of the volume which was also twice the usual volume for the time period, that may signal that position traders are shifting down. If the daily volume over the last few days showed a similar pattern, this is even more powerful. Now imagine there was lots of short volume after a news announcement as well. When the cash market opens and the futures trade down to test the overnight low will you be extra cautious? Not fade it at all because down side pressure may be big enough to break the market down making that not a very high probability trade? You get the picture. There is never one answer, but you need to know and analyze this stuff. Something to always remember about volume analysis: Volume is the truth. It is what really shows the market for what it is and no move is really important without it. It shows commitment of traders. period. And just because bars are moving up or down doesn’t mean any volume is trading in them. Any trend with low volume is suspect and any range with high volume to one side is a potential leading indicator. Don’t think of bias as predicting direction. Think of it as handicapping which levels you think are most likely to hold or break. If the overnight low is a trade you are considering fading (going long when price falls into it), if you have a short bias you might want to consider passing on the trade or just scalping it as there are underlying downward pressures on the market. But if you had a long side bias, that means you think the lows are more likely to hold so you can feel better about trading back into the range for a bigger distance.

News Section:

-This is fairly self explanatory. Obviously we list any relevant economic news from 8:30, 9:15, 9:45, 9:55, & 10:00 which are the times of release potentially interacting with our first hour trading. If the news is pre-market we may list and comment on the result – especially if relevant to any levels. If it is after the open we may comment on what to expect or watch out for depending on what the number is. In this section we may also list and comment on any non-economic news, earnings, major world events, macro items at the forefront for the session. Economic news rarely effects anything we do as our trading is always level based and never within the volatility of the news itself. However, it is very important to know at least a little about everything potentially effecting the market as if the timing is tight it can make the difference once and a while as to whether a level will hold or fail.

Potential Trade Areas Section:

-Each price is taken directly from our assessment of volume at price filtered by discretion. As in the trade identification columns these are NOT absolute levels. Just our best guess where price will be either accepted or rejected because it has been previously. Until price is accepted as fair value by both buyers and sellers it will run out of supply and be rejected whether it is an unfair low or unfair high.

-Professionals refer to this supply related reaction as responsive buying or responsive selling. Trade entries can be in either direction and will be identified specifically in the potential trade section to the left. Generally speaking rejection areas are trade entries for us, although sometimes we will enter at an acceptance area as well. Once in a trade we like to target acceptance areas which are the opposite of rejection. These are areas that have previously traded with a lot of volume. “Comfort” areas where both buyers and sellers have previously agreed on value.

-The main function of the price ladder is to identify all key high and low volume prices likely to be encountered in a typical day with plenty of cushion to allow for expanding volatility. Each price is either a nearby volume high or low, overnight or previous session high or low, and/or floor trader pivot point. Many times the prices we list will end up covering the whole day, but we generally only trade once or maybe twice in the first hour in a typical day so we really only try to put up the levels that could be hit during that time with a bit of cushion for wild conditions.

-Regarding the pivots, we are old school and have used them since the old floor days. Though just silly math calculations that have no real meaning in terms of traded volume, etc., they have an uncanny way of curve fitting themselves to price and price action so we still look at them. Lots of traders still look at them too and the market WILL react to them. Of course when the market does react, nine times out of ten it will also be because there is a key volume area there also, but the pivot ends up being a bonus. In fact, this is a way that we frequently add confidence to a handicapped trade. If a price is a key rejection area and happens to be the daily R1/S1 or R2/S2 they tend to be even more powerful. Not as absolutes but it is nice to know when they “agree” with a key level we already identified.

-Again, pay special attention to the comments at each level. It is there that we point out important things we want to remember or stay away from getting sucked into. We can’t stress this enough. All levels are not of equal importance and shouldn’t be traded as such just because they were previously rejected.

-A very popular question is how do we put all this together? It is really quite simple and intuitive. Analysis starts with identifying a level you are considering trading today. First you will look at the level and confirm it is a rejection area. Then you will study strength and other factors such as whether it is a previous high/low or pivot and based on the overall sentiment, decide how you want to trade it. If a level was particularly strong and was also maybe an overnight or yesterday high/low or  pivot or some other congruent  indicator, you might feel even better about the trade. Once in you might pick the next acceptance (or rejection) level to use as a potential target or guide for your trade. If you are in and know where the next rejection area is, you will probably want to consider coming out before you get there as if you get the typical responsive activity there it may eat into your profits. But of course if your intent is to trade a longer term model designed to have a lower win rate but higher profit factor you might hold through those tough spots. The reason we have so many levels close together is to give options on trades. Any level can also be used as a trade targeting guideline, regardless of whether it ends up being a new entry or not. Beyond those on the sheet of course, other entry levels or key spots in the structure may also be used as targets.