Daytrading the S&P500
A Visual Approach

2. Mental Visualizations.
It can be a great advantage to a trader to visualize the possibilities of the next trading session, especially after one has analyzed the market and knows the probable volatility conditions. If your analysis suggests a high probability of a breakout, trending market the next day, attempt to see in your mind's eye how this would occur if price moved higher, lower, or the breakout failed altogether.

If, on the other hand, a consolidation day is impending, a trading range can be visualized where highs are sold and lows can be bought. Visualization will help you to (1) plan how you will carry out specific trading tasks so that they become automatic, (2) anticipate difficulties and how to overcome them, and (3) avoid mistakes.

3. Locate Low Risk Opportunities.
It is necessary to determine when risk is very low. As part of the risk assessment for each potential trade, you need to be objective as possible while doing analysis. After a number of ideas are put together, determine the risk associated with each approach. It is critical to not jump to any conclusions at this stage.

4. Location of an Entry Point.
Once a low risk idea has been generated, it is necessary to locate the best possible price for an entry. The psychological state for locating an entry point involves: a broad focus, an overview from a longer time frame than the one you are trading, and a strong focus. At this stage of the trade, it is important to get into the flow of the market and be sensitive to a range of market clues.

5. Market Entry.
The psychological shift from locating an entry to entry into the market is very dramatic. Entry should be swift and without hesitation. You simply do it. Many traders cannot make the dramatic mental shift from passive "what if" trade location to the very aggressive act of market entry. This is especially true of day trading. Where you may be in and out of the market many times in a single day.

Many traders are either too energized in the trade location aspect of trading and take the trade immediately and increase risk or focus too strongly on getting excellent trade location and end up getting nothing. This is a balancing act that must be mastered, if you want to consistently profit in the market.

6. Trade Monitoring.
If you correctly entered your position, then the market should move favorably very soon. If the trade does not move in your direction quickly, then you should cover your position. When in a trade, you should be alert, vigilant, and suspicious. Should price go sideways after your entry, EXIT NOW. Sideways price action often leads to a trap for one side as the close protective stops fuel price movement rapidly, especially as the market becomes thin from the lack of new traders entering the sideways price structure on one side of the market.

Should price not move in your direction, price action can be such that your side is trapped and, though you have a stop in, your fill can be hundreds of points away from that stop. As the trade continues to move in your favor, you should back away from your trading time frame to a longer time frame to get a broader overview. It is easier to be more objective now that your trade has moved 700 points in your favor. Now is the time to be calm, patient and centered. It is critical not to rationalize and distort the market's moves here.

You should also not interpret your indicators and signals according to any preconceived expectations. Doing so will either cause you to exit too soon, leaving money on the table or you will over stay your welcome and turn a winning trade into a loser.

Is your trade easy to hold? If the answer is yes, then the trade is good and you should continue to hold the trade. If however, price action goes sideways; behaves unexpectedly; or if you become uncomfortable, then the trader should either exit the market or at least cover part of the position.