Day Trading Rules

Day Trading Rules are important.  As with any Career,  rules must apply in order to be successful. I tend to agree with people who refer to day trading as a 'game'.  I think there is some validity to consider here, however, we must also understand that like any game, success is dependent upon rules. A while back,  I did a video on day trading rules and I called it 'rules of top traders'.  I never did follow up with any type of article, so I wanted to elaborate on it since I still get comments on this video today.

In day trading one can assume that it is easy, as many people claim they are day traders. Many may also give you their set of day trading rules and how they approach this difficult yet rewarding game. Let me begin by discussing  some traders I have come across in my 14 years of Trading. I can say I have seen traders who do very well using two monitors and traders who do very poorly using 7 monitors.  The bottom line is -  one thing is different and these traders simply have different rules. So what are they doing different? How come studies show 77-83%  lose money? How come they can't win and lose. You would think that if we had a 50% chance of going up or a 50% chance of going down then we would have at least a 50% chance of losing or winning correct? NOT! Fact is despite these simple odds, most traders lose money. Richard Dennis the famous futures trader once stated you can publish day trading rules on the front page of a newspaper and people would still not listen. I guess this is a statement that you must evaluate for yourself but the point is well taken.

Some Day Trading Rules for that 'Trading Edge'.

1.) Know How Much You Are Willing To Lose
The most important  day trading rule I am listing  first. I can't stress enough how important it is to know your 'boiling point' -  the point where you must say 'ok I am out' . The best way to implement this, is to use a set stop.... this way emotions will not get in the way of your trading. As humans we want to be right and in striving to be right we sometimes do not want to admit we are wrong and as a result, if we do not set a solid stop on a trade we may continue to let it ride against us. So to know how much you are willing to lose is a very important element in trading any market.

2.) Don't Be Arrogant
How many times did you get in a trade after a big winning streak? This next trade you thought you were infallible because you have had 10 back to back winners, so you make your stop extra wide and you place a huge amount of leverage on. I have been there and done that and yes, it was a costly lesson. Do you think just because I learned to trade on Wall Street that I am not human? Are you kidding me! people on Wall Street lose money also. So what I have learned is.... Don't be arrogant!  I can remember riding home after long hours of work  in my 500sl Merceded Benz at 27 years old and I thought I was the king of the world, well those feelings also seem to come with some of my biggest losses. So whatever the case if you have a winning streak of 100 or 5 and start thinking you are all it...stop yourself....tell yourself this "I AM AS GOOD AS MY LAST TRADE".

3.) Don't Hope
Hope is a wonderful spiritual answer in life. Hope, love and charity make the world a wonderful place. Let's face it,  if we had these elements would anyone be starving? Would anyone really feel alone and fall into some bad habits due to lack of love? Okay I will spare you with my philosophy and just say this....the markets do not care if you are nice, mean, loving, a Saint or a Wicked person. So I do not hope when I trade I just have rules.....again Day Trading Rules must have substance and be followed or they will not work. I have like many also experienced trading on hope and it does not work.

4.) Don't Average When Your Losing
This  is a one of those day trading rules that can be debated. I can say that traders who work for a small cap Nasdaq Market making firm will know that we were taught to buy and average down and also sell and average up. We have some key trading levels that we would exit if it hit our stopping point, so even though we were averaging it was calculated averaging that had a plan to it. The worst is averaging just to prove you are right on a trade, this is one of those day trading rules that you must think about to determine if it applies to you.

These are simple, but very effective rules to get you on the right track as you begin in trading or as you revamp your current strategy for trading markets. These rules can be applied to any market at any time. Stocks, commodities and futures can be used with these techniques. If you would like to learn more beyond these 'day trading rules', please refer to our signup page. I also suggest joining our twitter or facebook to get updates.

Video #1: