Four Top Strategies for Day Trading Success

Four top strategies for day trading success offer a way for even inexperienced options investors to profit.

There are “countless strategies” available but limiting the choices to a handful and becoming good at them is a way to keep the trading simple while developing expertise in ones that can be used repeatedly, said Hugh Grossman, a partner in a day trading advisory service called Pick of the Day, in which he teams up with a fellow seasoned option trader Ahren Stephens. The duo avoid complication by only trading options in the SPDR S&P 500 ETF Trust (SPY), a fund that seeks to provide investment results that correspond to the price and yield performance of the S&P 500 Index.

The S&P 500 Index tracks a diversified group of large-cap U.S. stocks across all 11 Global Industry Classification Standard (GICS) sectors. CICS also has 25 industry groups, 74 industries and 163 sub-industries into which the S&P uses to categorize all major public companies.

First of Four Top Strategies for Day Trading Success: Focus on SPY

As a broad and highly liquid investment, SPY allows investors to buy and sell whenever the market is open. The duo also can turn profits in both up and down markets by using call and put options, respectively. It does not need to become complex, since markets either go up or down, Grossman said.

“As we can make money in both directions, why should profiting be that difficult?” Grossman told me. “It is a matter of discovering the nuances that give it that predictiveness. We teach you those nuances every morning in the Trading Room.”

Those nuances serve as guideposts about how stocks are affected by economic news, Grossman said. By using that knowledge effectively, an investor can trade SPY options like a “puppet on a string,” he added.

Hugh Grossman is the senior partner in Pick of the Day.

Second of Four Top Strategies for Day Trading Success: Out of the Morning Gate

“Out of the Morning Gate” (OMG) is more than just the name of a strategy, Grossman told me. It truly is an “OMG” trade, he added.

“My big fear is that the authorities will one day ban us from teaching this amazing technique that garners a 6% return 96+% of the time,” Grossman said. “Simply put, we establish tight support and resistance levels around 9:30 a.m., just before the market opens.”

The strategy consists of four basic steps. Grossman and Stephens provide instruction for their Pick of the Day subscribers who participate in a group with others who connect remotely to watch and to hear from the seasoned traders who give step-by-step guidance.

1. The duo determines the short-term support and resistance on the five-minute chart.
2. At the first five-minute “candle” on the chart that closes outside of either that support or resistance, it signals the direction in which the duo will buy. Call options are designed to profit when the market goes up, while put options would rise when the market falls.
3. Then, the duo puts an option up for sale for a 6% profit target. They then wait and let the market work its magic.
4. In the odd time the pair does not get a breakout by, say 10:15 a.m., then there’s no OMG trade that day. That would be range-bound trading and questionable whether or when the 6% profit target could be reached.

For novice option traders, the first five-minute candle appears in the chart when the price closes outside the marked OMG lines of support and resistance, Stephens told me.

“It closes because the price will rise or fall outside of this area that we draw pre-market,” Stephens said. “The chart below shows one-minute candles. A five-minute chart is the same, except the candles are five minutes in length.”

Stephens told me during a recent interview that he and Grossman produced a perfect record in January 2023 for investing in SPY options repeatedly 19 times without a loss. If an “easy win” didn’t present itself, the duo merely skipped recommending a trade on that day, Stephens said.

Ahren Stephens uses analytics as co-head of Pick of the Day.

For their Pick of the Day subscribers who followed their guidance, they would have attained a total return of 124% for that month alone, Stephens continued. That triple-digit-percentage return in a single month gained my attention.

“That’s enough to turn an initial $500 into $1,115… and $5,000 into $11,150,” Stephens said. “And then imagine doing the same thing… over and over again.”

This system has been working very well in all kinds of markets, but there are rare losses. If and when that happens, the duo looks to either repair the trade down the road or, as a last resort, cut investors’ losses.

The options we buy are usually this Friday’s expiration, if it’s a Monday or Tuesday. If it is Wednesday through Friday, the following week Friday becomes the expiration date.

Third of Four Top Strategies for Day Trading Success: Scalp Trade

Another strategy that the duo uses is known as a scalp trade. Such trades can procure small gains, usually on a higher investment, multiple times a day.

The experts might recommend buying 20-30 contracts instead of 10, investing more per trade but look to gain only six or seven cents, as a rule. However, they also may pursue it multiple times.

At the end of the session, the duo usually walks away with a nice total profit. For demonstration purposes, Grossman said he usually uses a default trade of 10 contracts.

Four Top Strategies for Day Trading Success: Grow Investment Five Times

Another strategy is to try turning $2,000 into $10,000 within three months. Grossman called it the $2,000-$10,000K Challenge. Pick of the Day subscribers can use a carefully crafted strategy witnessed by those who participate in the group Trading Room.

Grossman recalled starting a morning with a recent balance of $5,602. With a profit target of $152, he advised buying 25 calls on the $255 strike price for this Friday’s expiration, costing $2.01, for a buy in of $5,025.

That was at 9:40 a.m., when SPY was “percolating” just under resistance, ready to break to the upside on the one-minute chart. Support was strong enough to give the duo confidence in the move.

Chart Courtesy of www.stockcharts.com

“We only needed seven cents to cover our targeted profit, including commissions,” Grossman continued. “Then, as SPY broke resistance, we realized we could procure more from this rally; hence I moved my target up to $2.24 to close the trade at 10:09 a.m. That turned out to be 11.4% in 29 minutes, grossly beating our targeted profit with $550, including commissions.”

Four Top Strategies for Day Trading Success: Beware of Political Risk

Investors still need to factor in political risk but the use of short-term options does limit exposure. Unlike a stock that may be vulnerable because it is based or does much of its business in a war-torn nation, trading SPY options limits the risk to the duration of trades that can be just minutes.

A truce agreed to by Israeli and Hamas leaders has been extended. The deal will allow additional people who were captured in Israel when Hamas militants invaded many villages on Oct. 7 to be exchange for Palestinians prisoners.

Fighting continues to rage in Ukraine as Russian forces persist in their invasion of the neighboring nation. For investors seeking to limit political risk, the four top strategies for day trading success offer a path to do so.

Paul Dykewicz, www.pauldykewicz.com, is an award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Crain Communications, Seeking Alpha, Guru Focus and other publications and websites. Paul can be followed on Twitter @PaulDykewicz, and is the editor and a columnist at StockInvestor.com and DividendInvestor.com. He also serves as editorial director of Eagle Financial Publications in Washington, D.C. In that role, he edits monthly investment newsletters, time-sensitive trading alerts, free weekly e-letters and other reports. Previously, Paul served as business editor and a columnist at Baltimore’s Daily Record newspaper and as a reporter at the Baltimore Business Journal. Plus, Paul is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The uplifting book is a great holiday gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many other sports figures. To buy signed and specially dedicated copies, call 202-677-4457.