There are 6 must know rules for day trading beginners to follow. In order to avoid blowing
up. Day Trading especially in the current market
conditions right now, could be the wild wild west, where you see monster 3000% gainers
take off like a rocket, and then a heavy sell off on the stock to no bounce city.
As traders who must know how to protect ourselves and most importantly our trading accounts
in these volatile markets. After trading for 7 years now, I have some very simple, yet
extremely effective rules for trading that will help with your journey to become and
stay consistently profitable.
The 6 trading rules I'm about to share with you can definitely help new traders form a
very solid foundation in their trading discipline. Such as not chasing breakouts, not adding
to a loser and not forgetting to hit the like button.
As you start day trading for a while you’ll realize that knowing these patterns or news
of the stock is just half the story. It’s important to have a trade thesis, yes, but
you can't just hit buy and go straight to chilling at the beach. No no trading is much
more than that. The most important rule in my daily trading
routine is Rule number 1: Always have a trading plan. Specifically a plan that includes entry
and exit price and also the risk level for every trade.
Let’s say see this stock for a potential long. I can only buy the stock when when I
see it consolidate around certain support levels with volume. And it has to have found
bottom for a level for me to risk off. Yes, you might think I am limiting my earnings
by not trying to pick the very bottoms or not trying to top tick the shorts. But honestly
for beginner day traders waiting for confirmation and planning for entries with clear risk,
is going to make sure you profit from the meat of the move, and limit the risks at the
same time. And part of the trading plan is a potential
risk reward of at least 3:1. That is 3 rewards to one risk. If the risk is more than that,
or if the stock is just sideways and can’t give me a good reward. Im perfectly fine leaving
the stock alone. On a side note to planning your trade. I recommend
beginner day traders to stay away from small cap penny stocks, and to just take them off
your trading plans. Mid cap and large cap stocks are much friendlier for new traders.
And their support and resistance levels are easier to plan.
Penny stocks such as company stocks that trade for less than $5 per share like OPTT currently
trading at around $1 and SOLO at around 2.40s. These kinds of stocks are just trash and very
illiquid. Your chances of actually picking the 1 out
of 100 penny stock that actually becomes the crazy 100 or 1000% ripper is next to nothing.
They are extremely volatile, their price action can seem random. Its very hard to gain consistency
if you start out trading just small cap penny stocks.
Now While you do need to follow a trading plan on whichever market cap stocks you trade,
don’t permanently become fixated on old ways of trading, always be flexible and adapt
to the market. What I mean here is that, yes, you do want to have repeatable strategies
every day, but over time, you could mix things up, try out new set ups as you gain more trading
experience and screen time. Depending on the information you had on the
stock, the current news or market sentiment, you could increase both the size and the trade
period in the stock, especially if the headline could fundamentally influence the company's
share value. Is the company’s takeover imminent? A conference
call coming up? Potential liquidation? Any of these fundamentally negative or positive
news are worth potentially sizing in even more, and perhaps trying to let the winner
ride a lot longer. Another thing I factor in when creating my
trading plan is the current market conditions. My plans usually correlate with the market.
For instance, when small cap stocks are slower and large caps are more volatile. I try to
be more flexible in my premarket trade planning and focus more on large cap stocks with range
and news. Instead, as you day trade over time, change
your strategy every once in a while and use the state of the market as your guide.
My rule Rule number 2 in trading: Analyze stock news like your life depends on it. Because
your trading account depends on it. I analyze stocks and study the news before
I buy or short any stocks, especially if the stock had made a significant drop. Most people
are trained to buy any dip, but thats a practice that should be used in investing, not day
trading. It can be tempting to buy stocks when you
see a huge drop in prices without having any information about the circumstance behind
the crash. Buy the dip right? This has to bounce right? Well that strategy works well
until the dips just keep on dipping. And this is a very common new trader mistake. Buying
the dips and averaging down. Depending on the severity of the news, the
stock may either bounce or just keep on crashing, especially if potential fraud or lawsuit is
involved. Picking bottoms on whatever drops is a very bad, bad idea.
I did this once and I spend days paying for it in terms of regrets, sleepless nights,
and broken dishes. Since then, I make sure to check the news and find catalysts for any
stock I’m looking to buy or sell. Trust me, this extra 5 to 10 seconds of work is
a game changer. I can do so really quickly on my Benzinga newswire.
Next we have rule number 3, step away from my trading computer when i start feeling emotional.
Emotions and day trading are like small trading accounts and chat room alerts to buy at the
HOD. They simply don’t work together. But if you get into a routine of planning
your trade and planning your plan like rule #1, this eventually will allow yourself to
be detached from the money, and keep your emotions in check. You see, it's not difficult
to make money in day trading, but it is harder to keep it.
One thing that had helped me greatly with controlling emotions and hype when I was new
to trading, was to avoid trading the market opens. And the reason is that the 10 minutes
after the opening bell is usually extremely volatile. Stop losses are getting hit, market
orders from hundreds of thousands of robinhooders are getting filled, lambos are raining from
the skies. It's a hot mess out in the open. If you are new, I strongly recommend to avoid
trading the opening.By doing so that will also give a new trader more time to analyze
stocks, the news and price action, and plan out their trades like rule #1 & #2. Instead
of blindly jumping in just they many jump into buying chat room alerts.
Most importantly, this will help with controlling emotions in trading. For many beginner traders,
the hardest part is not becoming emotionally attached to a trade. And not having one small
loss leads to a string of beginner losses. Rule number 4: Be realistic about your trading
profits. Take the meat of the move and do not out stay.
Besides analyzing a stock before jumping into a trade, you have to be realistic with the
stocks upside intraday while you are day trading. You cant just buy a stock and expect a 100%
run each time. I mean, sure you see some small cap stocks going up 1000-3000% on the day.
But how often does that happen? I don’t expect low float runners to squeeze
and eventually go to the moon, you shouldn’t too. Okay unless it's Tesla stock. Did 1000%
return already like it's nobody's business. See, history doesn’t always repeat itself.
Yes, there was World War I and II but World War III hasn’t happened yet anyway. Hopefully
not. You shouldn’t regret making small wins on
a stock, or FOMO on missing out and selling too early. You can always buy the stock back
when it dips, and if the momentum and uptrend continues. Same thing if you are swinging
or investing long term too. Stocks like AAPL, MSFT, AMZN despite their success, dip every
once in a while. So, no need to panic that you are missing out on something huge.
For new traders, especially if you have a small account, do not aim for home runs, focus
on controlling your risk, and look for base hits. Yes the profits are probably small,
but taking these small wins are less stressful and they will add up to your account slowly.
And the growth is exponential. Whining about missing profits, and jumping
back into trades due to Fomo and the idea that “oh i could have made so much more,
this stock owes me now” Is actually a very negative and dangerous emotion. Because eventually
that will lead to new traders revisiiting trades, and start revenge trading and giving
back. When you are realistic about a trade it helps
you to ignore those dollar signs, and becoming too attached to the money. Let me ask you
something: why do people get into day trading? It's mostly for the money, right? But ironically
if you focus on just the money, you will fail in trading even before you take off.
If you are relatively new to the business, start trading with one or two stocks per day,
take the meat of the move and be done. don’t follow every single scanner alert and go for
more stocks due to greed and FOMO. Even now If I trade too many stocks simultaneously
in full size, I would end up missing out on chances to scale in, take profit, and giving
back some profits. So, I try to stay focused on 1 0r 2 trades instead.
Rule number 5, and its an extremely important one, always and I mean always prioritize risk
management. You see, most traders fail not because they don't have the winning strategies,
or they’re using the wrong brokers, or they dont have locates to short.
its because they focus too much on the the shiny dollar signs, the money, like we just
talked about. So much so that they ignore their risk fail to see the potential downside.
Without risk management, it is going to be difficult to grow your account. Without stops,
and without setting max losses for the day, the trader is likely to, first, try to make
back small losses, then over trade, then start making mistakes, and eventually this is how
many new traders blow up. Day trading is risky. And that's why, you
shouldnt trade with the money you cannot afford to lose. If you use a margin account to short
or have the cash settle within a day then that's great. But for new traders, please
do not use the buying power you cannot afford to lose.
Make sure your trading funds are separate from the money for your emergency funds, and
you have separate savings and investing accounts. Managing risk is important but at the same
time, you need to accept the fact that taking risks is necessary in day trading. Like I
said, day trading is a risky business, so you will need to take calculated and planned
risks, and at the same time manage them so you won’t go overboard.
Rule number 6, do your own research and do not blindly follow others. Doesn’t matter
what the hype is, what the stock analysts are saying, I do my own research and make
my own judgement, not what my best friend says or other traders say online. Same as
this youtube video you’re watching right now. These are just my opinions as a day trader,
not advice. It's important to, sure, take a look at what
your friend or trading community brings up, but always form your own plan before entering
a trade. Long time ago, I had a friend who already
got the hang of trading and made lots of money. I listened to some of his advice and found
it didn’t exactly work with me. Do you know why? it is this simple: my situation and personality
was very different from his. We don’t follow the same day trading strategy,
we never had a similar position size, and I had no idea of his stop-loss or target price
or stop-loss. And this is why, you should never blindly chat room alerts.
Don’t let others opinions and trade biases cloud your judgement in day trading. Ignore
those rumors flying around especially in places like forums, StockTwits and social media platforms
like Twitter and Facebook groups where day traders just bounce suggestions of each other.
Develop and follow your own strategy, and trade your own plan, not someone else’s.
Its kind of funny because while we day traders are taking advantage & profiting from short
term momentum, we must have a long term outlook on this trading business. And all the RULES
rules I mentioned today, are here to protect your trading accounts, so it could stay green
and continue to do so for the long term. From all the trading rules I have shared,
tell me which ones do you find helpful too? And at the same time, share some of your trading
rules with me in the comments section as well. Im always interested to see more ideas and
suggestions.