The Three Most Important Day Trading Rules

One of the keys to being a successful day trader is to have a list of rules that you consistently follow. Unlike a normal job where you would have a boss overlooking your shoulder, as each day trader you’ll be your personal boss and thus be responsible for your own results. By writing down and following your day trading rules, you’ll create a system that reinforces your trading discipline and prevents you from making costly errors. In this article, I’m going to share my three most important day trading rules.

Rule #1: Manage Risk On Every Trade

This rule is really the foundation of my trading philosophy. It means that on every trade I make, my first consideration is not how much potential profit I could make, but how much money I could potentially lose. Too many traders focus too much on the potential profit and forget the importance of risk management. Before I make any trade, I know what my downside is and the purchase price at which I’ll exit the trade if it goes against me (my stop-loss). This means that no single losing trade will be catastrophic. As a trader, my goal is to hit consistent singles and doubles rather than necessarily home runs.

Rule #2: Limit Midday Trading

Another key to becoming a consistently profitable day trader is to understand the importance of the time of day. Regarding trading opportunities, not all times are created equal. Generally, there is a lot more volatility and volume in the currency markets at the open and close of trading and a pronounced lull in trading activity through the middle of your day. Because day traders need volatility to create money and in addition must overcome their transaction costs, trading in the center of the day is frequently a negative idea. www.daytradeforgood.com/2020-in-review-matthew-poll-and-kevin-jones-of-lehi-utah-donate-154000-to-charities-in-2020/ To enforce this rule, I keep my eye on the clock and drastically reduce my position sizes and risk in the center of your day (generally from 10:00 am -2:00 pm CST).

Rule #3: Review Every Trade I Make

I view every trade I make as a learning experience, both to learn more concerning the strategies and techniques I’m using as well as to gain information about the current market. One of many beauties of trading is that you get instant feedback on your own decisions. In this review process, I focus my attention not on the results of the trade but on the decisions I made. Was my position sizing ideal? Should I have moved my stop-loss? Did I follow my risk management plan? As any experienced trader will tell you, there are lots of times where poor trades end up being profitable while excellent trades don’t workout. So that you can improve as a trader, it’s important that you learn from every single trade you place.

Conclusion

By following these daytrading rules, I know that I can be consistently profitable and make excellent risk/reward trades. While risk management may appear to be an abstract principle, I implement it by knowing my stop-loss prior to placing any trade. I’m also aware of probably the most opportune times to trade and limit my trading when conditions aren’t ideal. Finally, I gain insight out of every trade I make by having a thorough review process. Take the time to jot down your trading rules to create clarity to your trading and make sure you stay disciplined.

Author: grnafrica

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