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
An investor interested in day trading options may consider a bull call spread strategy. This involves buying a call option at a lower strike price and selling another call option at a higher strike price, which can limit both profit and loss potential while still benefiting from an increase in the stock's price.
What is the best strategy for day trading options? ›
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.
How do people day trade options? ›
Day trading options involves buying and selling options contracts within the same trading day. This means that traders have a limited timeframe in which to make trades and generate profits. Traders need to be able to make quick decisions and act fast in order to take advantage of short-term market fluctuations.
How to trade inside days? ›
Inside Days in Bullish Markets
Also, the trading strategy involves waiting for a price breakout from this pattern. In a bullish market, traders look for prices to break above the inside day's high. Generally, an entry point would be set when the price breaks above the high of the inside day pattern.
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 much money do day traders with $10,000 accounts make per day on average? ›
With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].
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.
What is the best time to day trade options? ›
The opening period (9:30 a.m. to 10:30 a.m. Eastern Time) is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.
Do you need 25k to day trade options? ›
Why Do You Need 25k To Day Trade? The $25k requirement for day trading is a rule set by FINRA. It's designed to protect investors from the risks of day trading. By requiring a minimum equity of $25k, FINRA ensures that investors have enough capital to absorb potential losses.
What is the success rate of day trading options? ›
Estimates vary, but it's commonly accepted that only around 10% to 15% of day traders are successful over time.78 This low success rate is attributed to the high risks, the need for substantial skill and experience, and the intense competition in the financial markets.
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.
Is there a trick to day trading? ›
Set a Financial Loss Limit
It's smart to set a maximum loss per day that you can afford. Whenever you hit this point, exit your trade and take the rest of the day off. Stick to your plan. After all, tomorrow is another (trading) day.
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.
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.
What not to do when trading options? ›
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.
Which option strategy is most profitable? ›
1. Bull Call Spread. A bull call spread strategy is driven by a bullish outlook. It involves purchasing a call option with a lower strike price while concurrently selling one with a higher strike price, positioning you to profit from an anticipated gradual increase in the stock's value.
What is the best order for day trading? ›
Limit orders are the preferred order type for day traders. It requires the trader to include a specific limit price to buy or sell shares.
