To ensure that you get the best out of this guide, keep in mind the rules of day trading listed below:
Be aware of your market. Try to specialize and concentrate on a few selected market or financial instruments. Over time, you will be attuned to the market or instruments that you have selected to focus on. In a way, you will develop a sixth sense of your market conditions.
Preparation is the key. Always prepare yourself properly prior to the next days trading. You still need to do the necessary groundwork. In a way, this is like giving yourself a briefing about how, where and when you will execute your trading strategy. Having an idea where to place your stop loss will ensure that you cover your loss point for the day. Thus, you can spend the major part of the day trading for profit.
Ensure that you stick to your trading plan. This will require immense discipline on your part but is an essential part of being a successful day trader.
Like rule 3, controlling your greed is not easy. This requires a high degree of self control. Don’t try to maximize every single point of your trade. At times, it is wiser to let go. In a fast moving market, a winning trade can easily turn into a loss.
Sometimes you have to cut a losing position and when that time comes, you should not hesitate. It is better to take several small losses than wait for a big loss to come hit you and wipe out all your capital.
It is also important that you never ever try to catch the market. If for any reason, you miss out on a good trade because you were slow, do not decide to jump in at the latter stage. It is likely that by the time you have entered the market, you will be doing so at the top end or low end of the deal. Skip the trade and return to trade the next day.
Never enter into a trade unless you have faith in what you are doing. Do not trade just for the sake of trading or because you are looking for excitement. In other words, do not overtrade.
Always trade with the trend. Never trade at the top or bottom end of the trend. The market is always fluid and it has the ability to go higher or lower than expected. If you stray from the trend range, you might find yourself at the wrong side of the trend.
Protecting your capital should always be your number one priority. Profitability is secondary. Controlling your losses will help ensure that you will live to trade another day. If you keep chasing profits and the market backtracks suddenly, you might find that a high proportion of your capital will be at risk.
Take note of upcoming news announcements. It is especially a bad idea to hold an open position before the announcement of any news which might move the market. Unless you can second-guess the market, you will never know what direction the market will move upon the announcement of the news.
Happy day trading!