Three Steps from Idea to Trade

TDA Network from Trader TV on thinkorswim® may give you many strategy ideas during the trading day. Watch and listen to learn about making a trading plan, analyze trades, paper trade, and then consider making a trade.

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6 min read

Key Takeaways

  • Develop and follow a routine
  • Discover new trading ideas
  • Convert ideas to real trades [Convert ideas to real trades]

It might be scary or glorious, but technology seems to have no limits. It won’t be long before your voice-activated personal assistants become part of the family. Some morning you may hear a cheery voice awaken you with: “Good morning! Your entry parameters have been met. Would you like to place a butterfly on the /ES?”

But for now, the only voice in the room is yours. And as a self-directed trader, trading days can feel a tad lonely and long. Fortunately, technology also brings lots of choices if you’re on the hunt for fresh ideas and like-minded traders. For example, the chat rooms on your thinkorswim® platform from TD Ameritrade offer Swim Lessons, Trader Lounge, and thinkScript Lounge. They’re all great places to hang out and brainstorm on platform tools. And have you seen the Trader TV gadget? Besides an array of CNBC channels (CNBC U.S., CNBC Europe, CNBC Asia, Futures Now), Trader TV lets you access TD Ameritrade Network—a streaming video content platform with a little something for everyone, plus a particular focus on options.

Market Watchin’

You encounter vast amounts of data every trading day. So what lives and what dies? What’s useful and what’s noise? Traders often plan the coming week on Sunday night, and you can, too, making technology a friend. Check out the calendar in the MarketWatch tab on your thinkorswim platform to scan for important upcoming events. Maybe it’s the middle of earnings season, four of the biggest market movers are releasing numbers, the Fed is about to release jobs numbers, and you’re concerned the U.S. dollar will continue to slide. Can this chaos be structured? Sure. First, consider the total weekly picture. Then focus on each trading day. Let’s do it together.

1. Make a Plan

The night before the markets open, fire up your thinkorswim platform. Tune in to the Asian and European CNBC news channels for a glimpse of overseas market action before the U.S. markets open. Usually this’ll be a continued narrative from U.S. markets the previous trading day, but there may have been a major news event after the close. Expect to get first clues from the futures market, which starts the night before and grows more active about an hour before the U.S. market opens.

To get a sense of the futures market, on your live trading account, add the Trader TV gadget on the left sidebar, then select TD Ameritrade Network (Figure 1). (Hint: You can also access the show from www.tdameritradenetwork.com.) You’ll find a morning Futures show in which Chicago-based expert Ben Lichtenstein covers premarket news and commentary. It’s a show “for traders by traders,” and you’ll find a mix of live interviews, industry professionals, and a snapshot of the overall market pulse. Hear something you like? Jot it down.

Let’s say GVRC, a big market mover, is announcing earnings after the close. Although the street expects positive numbers, the Futures show suggests a more bearish market sentiment. Typically, a stock’s implied volatility (IV) may rise due to uncertainty before earnings are released.

In this case, what trading strategies could you apply to GVRC ahead of earnings? You’ll likely hear about GVRC in the Futures show, and in the show that follows, Morning Trade Live. Maybe you’ll pick up a strategy you could apply to GVRC, like butterfly spreads. Just remember the shows do not provide individualized trading advice, so you’ll want to be sure butterfly spreads are the right choice for you before placing any trades.

FIGURE 1: STREAMING CONTENT. From the Trader TV gadget on your thinkorswim platform, select your network. Source: thinkorswim from TD Ameritrade. For illustrative purposes only.

2. Analyze Trades

Continuing our pretend TV watching, since GVRC is announcing earnings after the close, perhaps you’ll decide to watch Swim Lessons. The hosts may walk you through examples of different butterfly strategies you could apply to GVRC: bullish, bearish, or neutral. (Feel free to do further butterfly research through the show’s archives.) You can also follow along with the hosts by trying out new strategies using your paperMoney® account.  

Head over to the Analyze tab on the thinkorswim platform, choose the strike you want to trade, right-click, select “Analyze buy trade,” then select “Butterfly” from the dropdown menu (Figure 2). The order will be displayed in the Positions and Simulated Trades window. Next, check out the trade’s risk profile. You’ll see a risk curve that looks like a witch’s hat (Figure 3). The purple line is your profit and loss, and the cyan line is your strategy’s risk curve. Consider the probability of a price hitting a certain level, the max profit potential, max loss, break-even point, time decay, assignment risk, and expiration risk. Each strategy delivers different data. In the case of a butterfly, the cost is lower, but so is the probability of profit. But at least the risk is defined.

And don’t overlook the greeks, especially theta, as options get closer to expiration. Remember that in a butterfly, all four positions have the same expiration. So you may not see profits until a trade is close to expiration.

FIGURE 2: ANALYZE YOUR TRADES. From the Analyze tab on your thinkorswim platform, select the strikes, then select the type of trade you’d like to analyze. Source: thinkorswim from TD Ameritrade. For illustrative purposes only.
FIGURE 3: HOW DOES THE RISK PROFILE WORK? The risk curve of a butterfly resembles a witch’s hat with the peak of the hat at max profit. But probability of that happening isn’t high. Source: thinkorswim from TD Ameritrade. For illustrative purposes only.

3. Make a Trade?

Let’s assume you’ve moved beyond the paper phase because you’re prepared to take on the risks of the strategy. You like your chances on the GVRC butterfly. You’ve crunched the numbers to identify the trade’s cost, determined your max profit potential, and analyzed the risk.

Now you can place the trade directly from the Analyze tab or the Trade tab. Select the strikes, then hit the Confirm and Send button. You’ll see an Order Confirmation Dialog window (Figure 4) that gives you one more chance to study the trade before sending the order. You’ll see breakeven price levels, max profit, max loss, cost of trade (including commissions), and your buying power effect. Still look good? Hit “Send” and wait for the order to be filled. If you have a change of heart, go back to the drawing board. You might want to play around with different strikes or different strategies like straddles, iron condors, or something a bit less complex like vertical spreads—assuming you have studied the risks associated with each and are prepared for them.

FIGURE 4: ORDER CONFIRMATION. Still like what you see? Are you comfortable with the risk-reward ratio? If not, you can go back to square one and analyze different strategies. Source: thinkorswim from TD Ameritrade. For illustrative purposes only.

Hungry for even more? You can always keep one ear on the TD Ameritrade Network, which broadcasts beyond the market’s close. 

Personal trading assistants are still a thing of the future. In the meantime, the digital age brings you real human voices who are passionate about trading and can help make the journey stimulating and fun.


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Jayanthi Gopalakrishnan is not a representative of TD Ameritrade, Inc. The material, views, and opinions expressed in this article are solely those of the author and may not be reflective of those held by TD Ameritrade, Inc.

TD Ameritrade Network is brought to you by TD Ameritrade Media Productions Company.

TD Ameritrade Media Productions Company and TD Ameritrade Inc. are separate but affiliated subsidiaries of TD Ameritrade Holding Corporation. TD Ameritrade Media Productions Company is not a financial adviser, registered investment advisor, or broker-dealer. 

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Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

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