Scenario Planning – Unleash your intuition
Scenario planning is a very effective technique for preparing to tackle the financial markets. It is a core skill that novice traders develop during their time on our Trading Floor Training programme which provides traders with a clear focus when in front of their screens. If performed correctly it facilitates making profitable trading decisions under extreme pressure; a key ability that defines an elite performer.
To perform Scenario Planning we use objective, market-generated information to prepare a series of possible scenarios that may unfold during the trading day. These scenarios allow us to answer, in advance, the question “what if...” For example, prior to the market open day we should have already formulated a response to questions such as “what if the market opens 10 ticks higher, sells off 20 ticks and pauses?” We analyse the key characteristics of our specific market including: the typical range of the first hours’ trading, the morning session and the afternoon session, significant intraday highs and lows on a 15/60 minute chart and key fundamental data that will be released. We put this information into context by assessing whether our market is trending, or not, in the short, medium and long-term. With this information to hand we are able to visualise what might happen if a typical day unfolds and, more importantly, how we are going to react when the market moves to pre-defined areas where we are either a buyer or a seller. The technique also enables us to recognise swiftly when an atypical market structure is unfolding and how we may amend our trading approach accordingly.
This technique should be employed as part of a trader’s pre-market routine. The scenarios can then be adjusted in real-time as the market-generated information develops throughout the trading day. Pre-market planning should always be reviewed as part of post-market analysis in order to refine and improve the skill.
Scenario planning, if performed effectively, allows a trader to be fully prepared for the trading day. He should know how he will react if the market behaves in both a typical and an atypical fashion; there should be few surprises. By analysing in advance potential market movements, and pre-defining buying and selling areas, a trader is able to avoid ineffective impulse trading. More importantly, a trader is freed to focus on the price action, volume and order flow and use his instinct and intuition to trade.
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Tags: 15/60 minute chart, buyer, fundamental data, highs, lows, market open, range, seller
