10 Steps Ahead of the Market

BellaGeneral Comments1 Comment

Hi Mike,

How’s it going? Hope your family and trading have been well.

I am improving as a trader. These days I am net positive month on month. However, I’m still not elevating my performance to the level I want it to be. It’s frustrating because I know I’m capable of so much more.

I want to get my brain to run this routine over and over repeatably in milliseconds every time I spot a trade. That way I can avoid and filter away trading positions that don’t make sense (and realize only later when I get stopped out). Do you think it makes sense?

Hope to catch you soon in New York/Singapore!

And here are my 10 steps:

When you spot a potential trade, ask yourself: What attracts you about this trade? There must be a logical RR scenario that gets you excited about this trade. Do not trade because you “love this contract”!

You should now switch into the risk managing mode and think about…

  1. Price Target (relative long-term chart) that attracts me to the trade (in terms of ticks). Always use a larger timeframe chart to find profit target. This will be your “ideal” scenario (although we all know there is no such thing as ideal in trading).
  2. Step one (above) can be done if you had planned ahead in identifying key inflection points on both short and long-term charts.
  3. Given the ideal scenario, get a sense of what type of trade this is. Is this trade a Trade2hold (in which you probably have to be hold the trades for days/weeks), Short Term Position Trade (STP), Purely Technical Setups, Reversal (catch top/bottom, with which you also probably have to hold for a substantial period of time given the risk you took initially to ‘catch’ the top/bottom, scalp trade, etc.
  4. The types of trade will allow you to appropriately come up with a trading strategy that suit your risk appetite.
  5. Is there any way to participate in this trade with a stop loss that is within my risk limits (limit is decided by the type of trade and the RRR of the trade; e.g. trading a reversal trade that has a RRR of 1:7 is justified even if it might requires a wider stop than a short term trend trade for example). There is no “one size fits all” risk limits and rules, but a higher RRR would give enough reasons to be more aggressive.
  6. Have a stop that would allow you to know when you are wrong and deviates from your scenario you had planned earlier in your rational state. Having such stops will prevent you from not taking losses and preventing you from habits of averaging losers.
  7. If this price point becomes difficult to ascertain, then you may still trade it if you scale in and pyramid your size gradually into your desired size with a risk limit that suits your risk appetite. This “testing and scaling” way of trading the market will allow you to still participate in runaway markets without compromising your pre-defined risk limit.
  8. Only when the above have been thought out and plan, can you be allow to place an order.
  9. At this point, be patient and stick to the plan as close as possible.
  10. Once you are in the money, decide at which level will you move stop to break even and which level you have to take at least x amount of ticks. Never let a big winning trade reverse to become a scratch or worse, A LOSING TRADE. This will allow you to always maintain a winner’s mentality and the mental capital needed for the grueling session ahead.


This is excellent work from you. Let me offer some helpful links below for you to consider and then ask the trading community from @stocktwits and @smbcapital to give their feedback.

Here is a past blog post that may help you with point 10 and taking risk off as you approach your target.

Here is a Webinar to review to help you determine your Reasons2Sell.

Remember to always be willing to adapt as a trader. So this 10 step checklist should undergo regular maintenance.

To the trading community, what are your thoughts on this 10 step process?

Related blog posts:
Two Lessons From an Improving Trader
What is the Best Preparation to Be a Trader?

You can be better tomorrow than you are today!

Mike Bellafiore

One Good Trade
The PlayBook

No relevant positions

One Comment on “10 Steps Ahead of the Market”

  1. Bella,

    Some thoughts:

    First the author has done some good intellectual work here and shows attention to many of the relevant details to converging on a decision to execute a trade.

    He writes prior to the list of 10 items.
    I want to get my brain to run this routine over and over repeatably in milliseconds every time I spot a trade

    The list of 10 items, as written, is virtually impossible to execute in milliseconds and equally impossible to do so objectively when wrapped up in the emotions of the moment of trading.

    IMO, much of what the list of 10 represents (as written) is the macro intellectual work necessary to determine if the macro chart pattern is a worthy candidate to stalk a trade setup and what levels are interesting for entry/exit. Every trader’s knowledge and ability is different. It has been my experience that it takes *time* to analyze the information in the charts to determine whether or not an asset has the *potential* to develop a high probability, high risk:reward scenario. Further the energy, focus and *time* devoted to a chart helps to internalize its quality and gives me *confidence* to execute my plan with *size* and stay with my trades to their logical targets.

    Watching Spencer’s morning market review videos might be instructive here. Prior to the open Steve will lay out (1) levels of interest and (2) potential scenarios that might lead to price trading at those levels and (3) how price should behave at those levels for him to execute. All key elements in one’s trading

    IMO, these are things that must be done, prior to the market being open or, as in the 24 hour futures market, *hours* before price trades to those areas of interest. IMO, in order to trade most effectively, one *must* have laid out the trade thesis, levels and potential scenarios well ahead of time and then be sitting on the price action waiting for it to come to the high probability areas.

    Process, process, process…..

    A checklist is just a process. I highly recommend the author think about a *set* of processes not just a *pre* trade checklist process.

    Bella’s “The Playbook” has examples of traders and their many layers of processes including
    (1) Continual self improvement
    (2) Developing market thesis
    (3) Analysis of macro charts (similar but different to #2)
    (4) Playbook development of trade scenarios.
    (5) Trade management.
    (6) Trade archival and review

    All of these processes are crucial the development and continual improvement of a consistently profitable trader.

    IMO, in the minutes/seconds prior to executing a trade, *ALL* macro decisions have already been made. You *know* all the details described in the list of 10 things above. All you are focused on is the micro confirmation of all your prior hard work, specifically you are sitting on (1) the tape, i.e. time and sales and L2 if equities and (2) micro charts, tick based or 1/3/5M with levels market. Once you get here in the moment of execution, you *know* the exact conditions of entry with a *limited* series of IF/THEN process structures that will *compel* you to enter the trade with size.

    My 2cents, HTH.


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