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A short term trader could reasonably conclude that market mispricing occurs more likely in moments of great fear than great greed. A short term outlook is much more likely to be influenced by emotion than the longer-term rational approach to the markets. For these reasons, a short-term trader could consider the idea of "Max Pain" in the search for tradable short-term opportunities.
In this article I’d like to talk about the process of finding symbols to trade each day. This can be applied to any timeframe really, because whether I’m conscious of it or not I have some reason for selecting a symbol to trade. Whether I plan to hold it for ten years or ten minutes, there was some thought process I went through to decide on that symbol.
It’s important to have a systematic trading process in planning your trades. In our weekly Owl Bundle on Thinkorswim user group Zoom meeting, an experienced trader shared how he plans on which symbols to trade the next day. I was very impressed with his systematic approach to trade planning starting first with an understanding of the market.
The simplest way to assess relative strength is to divide price by price to develop a relationship on the current price and compare that relationship through time. It can be normalized on a scale of 0 to 100 were treated as a raw unbounded number. Normalizing on a scale of 0 to 100 allows for consistency and simplifies the comparison between different instruments against an index or against each other.
Trading the markets on a daily basis with short term strategies places a premium on efficiently and effectively developing a comprehensive daily trading plan. Short term trading can be a very rewarding part of an overall trading and investment strategy. Without a sound and comprehensive plan, though, there are just too many ways to go astray for the novice trader.
