Day Trading for Income Features Three Key Steps

Day trading for income features three key steps used successfully by experienced traders.

Successful day trading for income ideally begins with a daily routine that is conducive to investing successfully. The process may vary for each investor, but preparation and guidance are two time-tested tools that potentially can help to produce potent profits.

But beware of emotions interfering with the process. 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 let emotions caused them to become over-confident, revealing a need to integrate robust risk management practices and a disciplined approach in trading strategies. Whatever one’s level of confidence, effective risk management is essential for safeguarding financial capital amid market uncertainties, the survey found.

Day Trading for Income Features Three Key Steps: Daily Routine

Day-trading sherpas are available to help those who seek assistance. One of them is Ahren Stephens, co-leader of the Trading Room advisory service, who told attendees at the recent Las Vegas MoneyShow 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 on Wednesday, Feb. 21. Stephens advised them to wait for the earnings 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.”

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.

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The duo typically avoids 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.

Trading for Income Features Three Key Steps: Patience Is a Virtue

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. Patience was needed to profit.

“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 computer 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.

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

The duo also instructed the subscribers to buy the Nvidia calls with an $800 strike price as a possible play on positive earnings. That trade recommendation proved prescient with Nvidia’s stock topping $803 on Friday, Feb. 23. The Nvidia call options went from a low of $2.11 on Thursday, Feb. 22, to a high of $25.00 the next day, Stephens said.

Trading for Income Features Three Key Steps: Stick to a Trading Plan

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

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 for Income Features Three Key Steps: Maintain 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 for Income Features Three Key Steps: Set Realistic Goals

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

1. The duo determines the short-term support and resistance on a 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 typically puts an option up for sale to attain a 6% profit target. They then wait and monitor the market for their next move.

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 until the following day. The goal is to gain at least a 6% profit, if any trade is recommended.

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 provide additional funding of $95.3 billion to Ukraine and Israel. House Speaker Mike Johnson (R-La.) has said that his top priorities are to secure the southern border of the United States and to fund the operation of the U.S. government that staved off a default on its debt with passage of a continuing resolution.

However, Ukraine’s forces have needed to pull back from strategically important places within its sovereign borders in the face of Russia’s superior manpower and military supplies. The invasion, which Russia’s President Vladimir Putin calls a “special military operation,” recently entered its third year. Putin eliminated political opposition leader Alexei Navalny as a threat to his reign by turning him into a political prisoner and moving him to an Arctic prison where he died suddenly on Feb. 16 after appearing in good health at a court hearing the previous day.

Navalny had been convicted of “extremism” after he returned to the country following his survival of poisoning in August 2020 reportedly carried out under the direction of Putin, a former KGB agent. Navalny’s family claims their loved one was fatally poisoned at the arctic prison with a nerve agent on Putin’s orders.

The burial was held on Friday, March 1, as thousands of defiant mourners gathered. Despite risking arrest by Russian authorities, mourners chanted anti-Putin slogans as they paid final respects to Navalny, who was serving a 19-year prison term for what Westerners would describe as publicly offering alternative views about Russia’s future direction.

Geopolitical Risk Mounts in the Middle East

Meanwhile, the Middle East remains a powder keg with Hamas militants and the Israeli Defense Force (IDF) battling in a war that reportedly has led to more than 30,000 deaths in Gaza alone. The war began on Oct. 7 when Hamas sent fighters into southern Israel in a murderous assault that reportedly killed 1,163 people and included rapes, torture and the abduction of at least 250 others.