Day Trading Requires Discipline and Three Key Steps

Day trading requires discipline and can be aided by the use of a three-step process recommended by seasoned traders.

Successful day trading ideally starts with a daily routine that is conducive to investing successfully. The process may vary with each investor, but preparation and guidance are two tools that can help to hammer out profits.

A City Index survey between November 23 and December 4, 2023, queried 3,000 participants and found the traders who responded to the questions sometimes allowed emotions to sway them to become over-confident, revealing a need to integrate robust risk management practices and a disciplined approach into trading strategies. Whatever the level of confidence, effective risk management is essential for safeguarding financial capital amid market uncertainties, the survey found.

Day Trading Requires Discipline: Create Daily Routine

Day-trading sherpas can help their subscribers profit despite a market volatility. Ahren Stephens, co-leader of the Trading Room advisory service, told attendees of the Las Vegas MoneyShow last week that they should create a daily routine to put them in a position to succeed. By using his own advice, Stephens correctly advised his Trading Room subscribers to expect NVIDIA (NASDAQ: NVDA) to report strong earnings last Wednesday, Feb. 21. Stephens advised them to wait for the announcement after the market’s close that day with the plan to profit the next morning if the company beats analysts’ estimates, as he forecast.

“We need to think quickly, logically and without emotion in an effort to buy and sell quickly and to be on our toes at a moment’s notice,” Stephens said. “Because of this fast execution and response time, sometimes it is possible that our emotions get involved in our trading setups. For me, I would say that occasionally emotions can play a role in our trading decisions.

Ahren Stephens co-heads Trading Room and Pick of the Day.

Stephens and his partner Hugh Grossman, who originally launched the Trading Room advisory service, lead their subscribers on a minute-by-minute basis each morning that the market is open.  They specialize in quick trading between 9:20 to 10:30 am ET, serving as co-hosts for the Trading Room, a virtual meeting where training and trading occur in a live, real-time market environment.

The duo typically avoid complications 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. That 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 that the S&P uses to categorize all major public companies.

Day Trading Requires Discipline: Patience Rewarded

For example, the pair recommended $498 calls in SPY on Tuesday, Feb. 20, that were due to expire on Friday, Feb. 23. It turned out that they did not fill the same day but dropped in value on fears of the upcoming Fed meeting minutes release on Wednesday, Feb. 21, Grossman said.

“Some traders let their emotions rule,” Grossman continued.

Despite encouragement of the stock and option sherpas for their subscribers to hold on to the call position through the release of chip maker Nvidia’s earnings scheduled for shortly after the market’s close on Wednesday, some investors dumped their calls for a loss rather than see if the technology stock reported strong results to turn the SPY calls profitable, Grossman said. Nvidia’s earnings, as the pair predicted, were “very positive,” and gapped SPY up about 6 points the following morning, he added.

Chart courtesy of www.stockcharts.com

“Those who detached themselves emotionally, scored immensely,” Grossman told me.

Hugh Grossman is the senior partner in Trading Room and Pick of the Day.

Day Trading Requires Discipline: Stick to a Trading Plan

A seasoned stock market guide who also has helped investors profit from Nvidia is Mark Skousen, PhD, who recommended in his Fast Money Alert trading service with his partner Jim Woods.

Mark Skousen, co-head of Fast Money Alert and Ben Franklin scion, talks to Paul Dykewicz.

Semiconductor chipmaker Nvidia, the darling of the red-hot artificial intelligence (AI) sector, keeps climbing. The Goldman Sachs investment bank recently raised its price target on Nvidia to $800 a share. With the stock surging after its potent earnings report, the share price is not far from achieving that mark.

“We believe Nvidia will remain as the industry gold standard for the foreseeable future, given its robust hardware and software offerings and, importantly, the pace at which it continues to innovate,” a Goldman Sachs analyst wrote in a recent research note.

Day Trading Requires Discipline: 

Stephens explained to those attending his presentation at the MoneyShow that staying disciplined when trading helps to control the emotions of fear and greed. He urged investors to follow a trading plan, to use correct capital management techniques and to take breaks after huge wins or an unexpected loss.

“When news items come out and trades are going in your favor, as well as when you have to wait out a news event that isn’t going in your favor, that is when you need to exercise either quick exits or long-term patience,” Stephens said.

Day Trading Requires Discipline: Set Realistic Goals and Expectations

The value of setting realistic goals and expectations is exhibited when Grossman and Stephens provide instruction for their Pick of the Day subscribers who participate in a group that connects remotely to watch and to hear from the seasoned traders who give step-by-step guidance. They almost always stick to trading SPY options.

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. The duo puts an option up for sale for a 6% profit target. They then wait and monitor the market.
4. If the pair does not see a breakout by about 10:15 a.m., then there might not be a Pick of the Day trade recommendation that day. The goal is to gain at least a 6% profit, if a trade is recommended.

Chart courtesy of www.stockcharts.com

Geopolitical Risk Rises

Ukraine is running low on ammunition and other military equipment to repel intensified attacks by Russian forces who invaded the neighboring nation in February 2022. Congressional leaders have been unable to compromise on a plan to protect the U.S. southern border to win support from House Republicans to support a bill to provide additional funding of $95.3 billion to Ukraine and Israel.

President Biden expressed hope that a temporary ceasefire can be reached within the next week to allow the release of hostages taken by Hamas militants from Israel into Gaza. Roughly 130 hostages abducted on Oct. 7 by Hamas remain in Gaza. However, Israeli officials say about a quarter of them are dead. Meanwhile, the Israeli Defense Force (IDF) continues military operations in Gaza in response to the Oct. 7 attack by Hamas that caused 1,163 deaths.

U.S. Congressional leaders are negotiating with President Biden to extend federal government funding. A continuing resolution is under discussion that would avoid a partial government shutdown this Friday, March 1.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, Guru Focus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Special Holiday Offer: 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 great gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for special pricing on multiple-book purchases.