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4 DAY TRADING THE DOW MINI

People who hold positions for days or weeks may be able to function without
detailed guidance for a brief period of time. In day trading, however, the mar-
ket will turn us into roadkill if we do not plan ahead.

The next portion of the definition provides some details on what to do before
buying or selling a financial instrument.

First, we note the context of the trade. All market participation occurs within a
context, i.e., an event-driven backdrop that establishes the general conditions
for trading. Stated differently, we can think of context as external influence
upon the market. Various types of influences (seasonal, financial, presidential,
exceptional) will be discussed in Chapter 9.

Second, we examine price movement. In this book, price movement includes
price direction (trend), momentum, and volatility. Many fine tools are availa-
ble to assess each element separately. When trading, however, we look for con-
sistency between them so as to confirm the accuracy and stability of the move-
ment before us.

Third, we select price levels that will enable us to make money. Both entry and
exit (target) are required in advance of trade initiation. Why? It is the relation-
ship between entry and exit that governs the amount of money we make. Ex-
cessive focus on one level to the neglect of the other diminishes profit poten-
tial.

The definition also describes trading as a risk-controlled endeavor. Risk control
is my top priority in trading. Without it, the probability of long-term survival
in the market is low. As we will discover in Chapter 2, risk can be reduced by
using several commonsense procedures on a regular basis.

Major Components

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On the whole, trading consists of two interrelated sets of activities. In market
analysis, we note the context, examine price movement, and choose favorable
price levels for entry and exit. With order execution, we implement a plan for
buying or selling a financial instrument, but do so in a manner that limits risk
of loss.

Notice that market analysis occurs before order execution (Figure 1.1). This is
an obvious and important observation. Newcomers to trading, as well as expe-