Day Trading in the Mental Zone

You are likely familiar with the mechanics of trading options on the SPDR S&P 500 ETF (SPY). This is all we trade; nothing else.

The reason is simple: master one great strategy and you won’t need anything else. Day trading options on SPY provides many daily opportunities. If you can’t make it on SPY, you likely won’t make it on any other stock or exchange-traded fund. Bruce Lee’s famous quote, “I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times,” is so apropos. Imagine becoming an expert trader on just this one stock, knowing its nuances and behavior, regardless of the market, whether it is trending short- or long-term, up, down or flat. When good news hits us, we trade it; when bad news surfaces, we still trade it.

Trading in the mental zone requires being at one with the market. Think of it as a dancing partner. You take one step forward; the market takes one step back. It then advances three steps forward; you take three steps back. When you are in concert with what is happening on the screen, you fear no adverse conditions that may present themselves but learn to exercise patience and discipline to let the market work out its gyrations. Countless times I have been underwater only to stay the course and exit for a profit.

Getting in the mental zone starts long before the opening bell. Start by checking the fundamentals. Economic news such as unemployment claims, Consumer Price Index (CPI), Producer Price Index (PPI) or Personal Consumption Expenditures (PCE) numbers and other economically influential data will move the needle. As a rule, any inflationary news will have a downward effect on stocks as it threatens a rise in interest rates. Of course, the converse is true. These days, President Trump’s speeches will be the overriding force. Pay attention to the subtleties of what is happening. When you see that the president tells the world, “You better go out and buy stock now,” as he recently said upon signing a trade deal with the UK, you may want to heed this sage advice. SPY rallied 20 points the next day!

Mentally prepare for SPY to move with chart patterns and breakouts, especially in relation to underlying fundamentals. For example, Tuesday’s CPI numbers, the only high-impact economic news scheduled, reported lower than forecast, suggesting lower inflation and, hence, pressure to keep or lower interest rates. I knew SPY would rise, fundamentally. Then follow the technicals to support that hypothesis. It turned out that SPY rose six points during that day. Get focused on calls, take small gains and repeat the trade until your humble goals are met, taking small bites out of the market. Had the CPI numbers proved otherwise, you could have likely ridden the market south.

Finally, if you are not full on, stay out. Also, make sure you remove all distractions. I tell people around me they can only interrupt if there’s a fire, and only if the flames are three feet high. No phone calls, no spouse, no kids, nothing. My focus needs to be on my trades 100%.

Feeling at one with the market is not that difficult, but it takes practice. Never embark on a new strategy without first testing the waters on paper. Pay attention to volatility to avoid overpaying for the options. Cheap contracts are riskier; stay with “at the money” options and always buy time. Fear not the short-term reversals, as markets rarely move in straight lines up or down. Remember, the beauty of a waltz is that the couple moves both forward and backward, in concert with each other. When you have a respectable profit, take it and wait for the next entry.

These are some of the softer topics we discuss in the Trading Room. Jon and I can help you stay in your zone.

Check out our other exciting DayTrade SPY programs, too.

Looking for a simple buy signal that earns 5% per day? The DTS Signal is sent to your cell phone as a text, three to five mornings a week.

Our Pick of the Day offers a specific option for a purchase at market opening.

Feeling sore? Let us do the heavy lifting. Our Inner Circle is a “must-have” for all traders, novice and experienced alike.

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Great trading,

Hugh