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Trading Education Posted by Team Topstep April 9, 2023

Grading Your Trading Homework

Trading Homework

Most of us can remember our school days. Some of us likely took our education very seriously, while others found it to be a less engaging portion of our life. Whether you enjoyed school or found it disinteresting, you probably learned to ascertain the value of homework.

Usually, homework is a prominent portion of the total grading scale for class. Beyond that, homework not only contributes to a part of the final grade, but it also assists in preparing the student for the more significant grading variables, including quizzes, tests, and exams. 

This article is about doing your trading homework. If you were given a grade on how well you completed the assignments below, what would it be? The likelihood is that your level of attention to this homework is reflected in your profit and loss. While trading homework does not deserve the sole credit for a trader’s success, I’ve found that traders who fail to complete their homework will never ultimately be successful. 

What do I mean by homework? I’ll express some specific factors momentarily, but in simple terms, I mean the preparation for your trading experience that primarily involves off-hours work. In recollecting my school days, it was always enjoyable to have a weekend without homework; however, in our trading careers, there is always something to prepare for. 

Take the Time To Do the Work

This content is prompted by something I have observed in more than a decade of working in the “retail” trading industry, observing the processes of traders who attempt to learn the ropes and eventually become professional or vocational in this field. 

It never ceases to amaze me that many who attempt to emerge as successful traders seem to expect to do little except turn on their screens, press the correct buttons while making the proper assessments, and then turn off their monitors and move on. 

Sure, this could be a formula that works for someone, but only after extensive homework and adopting a program that enables a computer system to do much of the complicated work for them. But even in such cases, that individual must still invest in a substantial amount of preparation in order to maintain such a program. 

3 Ways To prep for the trade

The next portion of this article considers the types of homework that are necessary for successful trading.

Headline Risk

I once knew a developing trader who originally affirmed that all he needed was charts and did not require an understanding of how news concepts play into the markets. While I think that one might generate some modest to moderate gains with such an approach, not everyone can ignore the news and be productive. Moreover, when this trader finally decided to consider news factors more seriously, that change became an essential part of his trading, moving from a hobby into income-producing success.

Let’s consider two factorsfirst, scheduled economic reports, and second, geo-political events. 

Scheduled Economic Reports

Initially, scheduled economic reports are predictable in that they are placed on a calendar some time in advance, often with a relevant forecast. While you may not trade based on these fundamentals, still being aware of how unique reports will affect which markets and in what ways is valuable information. This may do nothing more than alert you to potential volatility, which may either be something you want to avoid or benefit from. 

Additionally, looking these things up during the trading day makes for an ill-prepared approach. The best traders already know at the start of the day which factors are relevant before they ever start monitoring their charts. Sometimes this involves early morning work, late evening work for the following day, or a weekend plan for the week ahead. 

Geopolitical Risk

The second type of information to consider is geopolitical risk. I knew another trader who failed to fully assess the effects of the markets last year in 2022. Several factors came into play, including the Russian invasion of Ukraine, ongoing inflation matters with the Federal Reserve-induced monetary policy, and varying recession-risk headlines. 

This particular trader informed me of how hard it was to break even over the year. As we explored his experiences together, it was clear that none of his trading considered the geopolitical and economic macro-variables. For him, this made the difference in, at times, trading with momentum and, at other times, resisting it.


Again, like news or headline-driven events, this one seems like it should be clear. However, it’s amazing how frequently I see otherwise. I’ve observed some traders who expect to turn on their screens and begin trading, all the while making market assessments that require attention and energy that could have been exerted during “homework time.” Your trading hours are not the time to calculate your mathematical formulas or to start drawing trendlines and support and resistance areas. This should have been done well before your market opened. 

Now granted, there are times intraday when trendlines and channels start to form, and then it is helpful to identify market characteristics that have altered the charts across your trading day. However, as an exaggerated example, you need not look up the previous week’s high while you are currently fishing for trading opportunities; that is the type that should have been identified well in advance. 

Remember, the idea is for your homework to make you prepared. When your homework is complete before you trade, you have more time to consider the factors that matter to you and adopt a better plan. On the other hand, when you have to think about matters that could have been addressed during “homework time” while you trade, you may become distracted or have to make decisions much more quickly than you would like. 

Miscellaneous Tasks

Certain other homework areas are also vital, and I’ll address these matters in a single section. One such critical issue is your risk management plan. This is something that should also be considered during your homework time. Sure, adjustments may need to be made in the course of the day, but one should never enter a trade and then begin to consider volatility, risk, and target. When this type of homework is skipped, it’s like taking a test you haven’t prepared for. Sometimes your brilliance will enable you to pass the exam, but eventually, it will lead to disappointing results. 

Moreover, you might be surprised how many times I’ve seen traders begin to experiment during the course of the trading day. Sure, there are times to try something new, but not on a whim. For example, I once spoke to a trader who told me he had decided to try a new market that day. I asked about the thought process and was told that he had just decided to try something different without any serious prior consideration. 

I’ve seen other traders who, during the day, felt like their indicators weren’t adequately working, so without any homework, they decided to add new tools to their charts, deciding without any preplanning that these might work. 

Now, I realize that many of you wouldn’t do such a thing, but any of us, especially when we are vulnerable, might be willing to take a chance without completing a thorough homework regimen. I’ve frequently said that while trading is distinct from gambling, it still brings out the impulses of greed and fear in a way that is comparable to the casino. Trading tends to activate our impulsive tendencies. 

The Pros Outweigh The Cons

The benefits of homework should be apparent but cannot be overstated. Of course, some may be concerned with “analysis paralysis,” when excessive thought and preparation might lead to being too idle and afraid to engage with the markets. However, this is an entirely separate subject that might create a good follow-up article. 

The alternative to homework routines is to rely only on your skill, impulses, quick thinking, and ability to read the market quickly (and possibly, blindly) and expect this to serve to navigate a profession that few are able to conquer. Instead, I suggest that preparing and doing your homework is the much-preferred path toward success.

A ton more can be said about doing your trading homework. Perhaps, you’ll have some ideas you can share with the community by posting your comments below. Until next time, trade well!