The Inside Days Trading Strategy – How it Works
The inside days trading strategy is a powerful day trading strategy that has even been promoted by some as ‘the one trading secret that can make you rich’. The strategy is primarily based around stock trading, but could just as easily be adapted to more leveraged financial instruments including options, forex, and if your broker offers them, share CFDs.
The CFD, or “contract for difference” is an arrangement whereby you pay for around 5 – 10 percent of the value of a share, and the broker puts up “the difference” or the remaining 90 -95 percent. But then you experience the financial impact, positive or negative, of the price action from the whole 100 percent share value. It’s like a margin on steroids. CFDs are not available from US brokers but those in other countries such as Australia and the UK offer CFD trading on US shares.
Inside day trading is designed to take advantage of short-term price consolidation followed by a subsequent breakout in either direction. Once the breakout occurs, you enter at a predetermined price point, take profits, and exit shortly after. Do this enough times by locating enough stock trading opportunities while the market is closed – and providing you have sufficient capital (or leveraged capital, as above) to make the necessary trades, you can easily bring in about $400 per day – almost on autopilot.
To begin with, inside days trading involves identifying what an “inside day” actually is. Once we’ve done that, we then need to apply a simple but strictly observed set of rules for entrance criteria, stops, trade management, and finally, exit rules.
Historically speaking, inside days trading using the correct set of rules has a 90 percent success rate. For the remaining 10 percent, you simply set your stops at predetermined levels and take small losses. The maximum stop loss must never be greater than the range of the inside day that indicates the setup.
An “inside day” always reveals itself by the appearance of a specific bar on a daily chart the day after a preceding bar. It will generally be a day with a narrow trading range and the critical factor is that it has a ‘lower high’ and ‘higher low’ than the previous day. To qualify for inside days trading, the range of this bar must be not more than 50 percent that of the preceding bar.
It is important that inside days trading should only be considered for highly liquid stocks. You need to be able to have your orders easily filled without slippage.
Once you have identified an inside-day trading opportunity, you then draw a ‘channel’ across the peak and trough of the inside day. You then set your entry points at one cent above and below the channel. You should use a ‘one cancels another’ (OCO) type order for this, so that whichever way the stock breaches the channel, one trade will be entered and the other canceled. If the stock breaks above the channel, you ‘go long’ the stock; if it breaks below, you ‘go short’ the stock or derivative as the case may be.
You then set your stops at one cent above or below the opposite end of the channel that your order was filled on.
After this, it is simply a matter of managing your trades by calculating and setting profit targets. The simplest and most conservative profit target is the range of the inside day added to the trade entry price. There are, however, more advanced exit strategies that are slightly more involved.
This inside days strategy is a powerful short-term trading tool. Trade setups are easy to identify and entry points can be preset before the market opens, so you can have quite a number running at one time. With preset stop losses and profit-taking points, you can then just let the market “do its thing” and reap the rewards.
If you would like to know more about trading inside days, there is a video and .pdf document explaining the complete system in more detail, included among the bonus files that come with the Options Trading Pro System.
The Inside Day Trading Strategy
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FAQs
Some popular strategies for day trading options include the straddle strategy, which involves buying both a call and a put option with the same strike price and expiration date. Another strategy is the iron condor, which involves holding a long and short position in two different options.
Can I do day trading with options? ›
Day traders use options to speculate on short-term price movements in the underlying asset. They can buy call options through their brokerage account if they expect the price of the underlying asset to rise, or put options if they expect the price to fall.
What is the trick for option trading? ›
Avoid options with low liquidity; verify volume at specific strike prices. calls grant the right to buy, while puts grant the right to sell an asset before expiration. Utilise different strategies based on market conditions; explore various options trading approaches.
How to trade inside days? ›
For a bullish breakout, place a long order above the high of the inside day. For a bearish breakout, place a short order below the low of the inside day. Use limit orders to enter the trade at predefined price levels.
What is the 3 30 formula in options trading? ›
The 3-30 rule in the stock market suggests that a stock's price tends to move in cycles, with the first 3 days after a major event often showing the most significant price change. Then, there's usually a period of around 30 days where the stock's price stabilizes or corrects before potentially starting a new cycle.
How risky is day trading options? ›
Day trading can be extremely risky—both for the day trader and for the brokerage firm that clears the day trader's transactions. Even if you end the day with no open positions, the trades you made while day trading most likely have not yet settled.
Can you become a millionaire day trading options? ›
While it's possible to become a millionaire through day trading, it's not likely. Most traders end up losing money in the long run. A small number of traders, however, are able to consistently make money and achieve success.
How much can I make day trading options? ›
How much money can you make trading options? It's realistic to make anywhere between 10% – $50% or more per trade. If you have at least $10,000 or more in an account, you could make $250 – $1,000 or more trading them. It's important to manage your risk properly by trading them.
Why is options trading so difficult? ›
It is simply nothing you can figure out on your own like trading stocks. Options is a truly complex financial instrument and it can give you MANY nasty surprises that you never know can happen (Like all of a suddenly getting hit with a huge short stock position into your account that you never had before!).
How do you never lose in option trading? ›
The option sellers stand a greater risk of losses when there is heavy movement in the market. So, if you have sold options, then always try to hedge your position to avoid such losses. For example, if you have sold at the money calls/puts, then try to buy far out of the money calls/puts to hedge your position.
If you want to trade options, be sure to avoid these common mistakes.
- Not having a trading strategy. ...
- Lack of diversification. ...
- Lack of discipline. ...
- Using margin to buy options. ...
- Focusing on illiquid options. ...
- Failing to understand technical indicators. ...
- Not accounting for volatility. ...
- Bottom line.
Lack of a clear strategy: Options trading requires a well-defined strategy. If options buyers do not have a clear plan, exit strategy or risk management in place, they may make impulsive decisions that lead to losses.
Can I day trade with $100? ›
Can You Start Trading With $100? Yes, you can technically start trading with $100 but it depends on what you are trying to trade and the strategy you are employing. Depending on that, brokerages may ask for a minimum deposit in your account that could be higher than $100.
How long should a day trader stay in a trade? ›
Day traders typically target stocks, options, futures, commodities, or currencies (including crypto). They enter and exit positions within the same day (hence the term day traders). They hold positions for hours, minutes, or even seconds before selling them. They rarely hold positions overnight.
What is the easiest market to day trade? ›
Day traders commonly choose the forex market for its low barriers to entry as well as exchange-traded funds. Long-term investors are often attracted to the commodities market and the market for contracts for difference.
What is the most profitable option selling strategy? ›
If you are looking for an option selling strategy that has unlimited profits with limited risks, then the synthetic call strategy is the best way to go. As part of this strategy, the trader purchase put options on the stock that they are holding and which they think will rise in the future.
What is the safest option strategy? ›
The safest options strategy for generating income is selling cash-secured puts. An options trader sells put options with this strategy and collects premiums while taking on the obligation to buy the underlying stock at the strike price if assigned.
Which order is best for option trading? ›
The buy to open order is basically pretty simple, and it's the most commonly placed option order in options trading. When you want open a position and go long on a specific options contract, you would place a buy to open order to purchase that specific options contract.
