Practice plan - Step 2. The trading process; Part 1: Analyze the market

Analyzing the market state - part 1 of the trading process.

This occurs periodically throughout the day, and I am checking to see if the market is good for initiating buys, initiating short sales, or neither. As Mr Faith puts it, I am not trying to figure out if the market is heading up or down, but trying to read the market versus trying to predict it.

This check of the market entails checking several criteria:

• Is it early in the market cycle? The best time to enter the trade is when the market is just starting to move in a particular direction, or after moving several bars in the opposite direction. 
• Technical alignment - Primarily in terms of price level support and resistance - or potentially in terms of s/r that other market participants follow: trend lines, MAs, or perhaps round number price levels. (I will primarily be using price s/r.)
• Running room - is there a lack of resistance near the purchase level (for a buy)? Is there a lack of support near the sell level (for a short?)

Again, not a lot of new info here - the key is to realize and make this a matter of intuition (spatial relationship manipulation and imagination) rather than left-side brain analysis. The thought that struck home is that I should be concerned not with what the market tells me right now, but what the market will be telling me if some significant change takes place. I need to be able to look at the market at any point in time and define the minimum change that signifies a change in the market cycle. Not predicting, but anticipating. 

In other words: 

'What, if anything, would the market have to do for it to be a good time to initiate a buy? And what, if anything, would the market have to do for it to be a good time to initiate a sell? ... Most days are not good days to initiate a swing buy or sell.'

And in my case (day trading), most market bars are not good bars to enter a position.

So - how to make this intuitive? This is the books primary theme and the steps are basically the same:

1. Don't allow time for the left side of my brain to take over. At first this means limiting the decision time to 15 seconds; and reducing the time as I gain competence. To make a decision within this time frame, the answer needs to remain simple: Buy if it exceeds the previous bar high. Sell it drops below the previous bar low. No entry. If I can't make a decision within the time limit, the answer by default is no entry.
2. Keep the analysis visual rather than numerical. This means removing, as much as possible, all numerical references.

If I don't give myself time to think, my intuition will take over. The key is to provide a proper/correct framework for my intuition to work within.

The market is monitored throughout the day, and the decision is reviewed again just before placing an order.

(Note: This is drawn from the ideas presented in Trading from Your Gut: How to Use Right Brain Instinct & Left Brain Smarts to Become a Master Trader. Mr Faith endorses swing trading, while this is my attempt to apply the same ideas to day trading.)