SPY MACD Histogram Reversals and Rejections

Strategy Overview: Intraday SPY Options Day Trading with MACD Histogram Reversals and Rejections
This is an intraday trading strategy designed specifically for trading SPY (or SPX) using 1DTE options. It focuses on price action during the morning session and leverages MACD histogram crossovers, volatility analysis, and short-term price rejections to enter directional trades (calls or puts). The goal is to capitalize on early momentum shifts and retracement failures after initial market moves.

Key Trading Hours and Constraints
Trading Window: Only trades between 9:50 AM and 1:00 PM EST are considered.

Trade Cutoff Buffer: New trades are blocked in the final 5 minutes before the 1:00 PM end time to avoid auto-close conflicts.

First Hour Focus: Special logic applies during the first hour of the session (9:30 AM to 10:30 AM), where reversal-based setups are tracked more aggressively.

MACD Histogram Setup
The strategy calculates both 5-minute and 10-minute MACD values.

Signals are generated when the 5-minute MACD histogram crosses the zero line, indicating a momentum shift.

The magnitude of the histogram (absolute value) must exceed a threshold (0.10) to validate strong enough momentum.

The 10-minute histogram is used as a confirmation filter: if it’s under 0.17 in magnitude, it favors a call entry (bullish breakout); otherwise, it defaults to put entry (bearish momentum).

Reversal & Protection Logic (Early Morning Retests)
Call Rejection Protection (To avoid entering long after a strong upward move and sharp retrace):
Monitors price from 9:30–10:00 AM for the lowest point.

Then from 10:00–10:35 AM, it tracks the highest price.

If price retraces more than 90% of that move up, it avoids new call entries.

Put Rejection Protection (To avoid entering short after a downward move and retrace):
Tracks the highest point from 9:30–10:00 AM, then the lowest price from 10:00–10:35 AM.

If price retraces more than 90% of that downward move, put entries are skipped.

This avoids buying into failed breakouts or deep retracements, protecting against reversal traps.

Entry Conditions Summary
A trade is considered only if:

It's within the allowed time window.

MACD histogram crosses zero with sufficient strength.

No retracement rejection conditions are triggered.

The 10-minute MACD filter confirms momentum direction.

Risk Management – Dynamic ATR-Based Stop Loss & Profit Target
Uses a 6-period ATR to size both the stop loss and profit target.

ATR multipliers are adjusted dynamically based on RSI(14) values to account for current volatility and overbought/oversold conditions:

Profit Targets: Scaled using an aggressive ATR multiplier tied to RSI position.

Stop Losses: Slightly wider to prevent premature exits from minor retracements.

This adaptive approach helps ensure realistic targets while keeping risk within bounds.

Options Profit Estimation
Estimated option move is calculated using:

The difference between entry price and the profit target (in underlying asset).

Assumes 0.48 delta to approximate the expected option gain/loss.

These values are displayed directly on the chart as part of the trade label.

Trade Execution and Labeling
Each trade is assigned a unique ID and visually labeled on the chart with:

Direction (Call or Put)

Profit target level

Estimated underlying move

Estimated option gain in dollars

Alerts are also triggered to notify on entry signals, showing the estimated option profit.

Performance Tracking and Statistics
Tracks total trades, wins, losses, and current win streak using strategy.closedtrades.

Displays these values in a live stats table on the chart for real-time feedback.

Additional Visual Aids
Table showing:

MACD profit targets and histograms

Estimated option moves

Intraday range (high – low)

Draws a horizontal line at the nearest rounded price level for quick visual context.

Marks key morning times (9:55, 10:00, and 10:30) with small labeled markers.

Overall Objective
This strategy aims to:

Catch early directional momentum in SPY within a controlled risk framework.

Avoid trading into retracements or false breakouts.

Provide visually clear, data-supported trade entries for real-time manual execution.

Estimate profitability in terms of options pricing for quick decision-making.

It's ideal for traders looking to day trade 0DTE or 1DTE SPY options using technical triggers, real-time filtering, and protective logic to reduce false signals and improve timing.