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Best day trading rules

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Some of the best day trading rules

Trading without rules can be likened to a pilot flying blindly or driving with poor visibility. It won’t take long before you run into a brick wall.

As a beginner or first-timer in the financial markets, one of the reasons why you could be losing so much money is probably because you don’t have a strategy or day trading rule. Most old-timers or experienced traders learned the importance of day trading rules the hard way and it’s a lesson they won’t forget in a hurry.

In trading, there is no such thing as an airtight strategy. If you are looking for the best day trading rules to get started on your trading journey, you may never get your trading career off the ground.

Instead of constantly chasing after the best day trading rules, you can get started with basic trading rules (from experienced traders) and improve on them as you become more experienced.

The idea of having a day trading rule is to prevent you from making rash decisions and not get emotionally driven while trading. One of the popular day trading rules is taking notes of your trades.

Taking note of your trades can help you pinpoint when you should and shouldn’t be trading. It also tells you what you are good at trading while steering you clear bad trades. With the right trading rules or the best day trading rule, you can enhance your focus and spot profitable setups without breaking a sweat.

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Is Learning To Not Trade As Important As Learning To Trade?

Learning when not to trade is as essential as learning when to day trade. This because if you know what situations to avoid, you can simply focus on what works for you. Giving you a real fighting chance to grow and learn as a true trader.

Sometimes is as simple as sitting at your desk and waiting for the setups to come. By doing this, you will be investing in the high probability trades which will put you in an environment that is ready for success. This is why learning when not to trade is essential for all traders in general.

Learn when to sit on your hands

Learning to sit on our hands is an essential lesson we must learn as new traders. It teaches us to be patient and helps us wait for the right opportunity to come our way. This is why basic day trading rules are essential, they help us not force trades.

It also helps us avoid errors that can cause us to lose money. If we know we do not trade well before 9:45 am, then set a rule to avoid that time frame is the most sense-worthy thing to do.

As day traders we seem to think that we have trade every single day that the market is open. However, this is far from the truth, especially after one has gained experience in trading. And has set certain rules set in place for themselves.

After spending some time trading we gather our data to identify certain things. For example, accurate time of day, stock prices, volume, all these criteria, and more can be useful when helping us identify our opportunities. Then, with this information, we formulate rules that apply to us specifically. For instance, no trading before 9:45 am, during lunchtime, stocks under $1.00, and so forth.

There are trading days where we might sit on our hands for hours before we take our first trade. This is perfectly normal for a trader with rules because no stock had a setup that fell within the rules or parameters.

Day trading rules for rookies

The best day trading rules are the ones that make consistent profits and prevent you from blowing your account. While there is no perfect trading plan, it’s always best to study your trading pattern and make write them down.

That will form part of your trading rules. While you are at it, you must have had it at the back of your mind that having trading rules is just a pier of the puzzle. You must also develop the discipline to stick to the rules.

The role of discipline cannot be overemphasized in day trading and professional day traders will attest to that. In the heat of trading, most day traders become emotional, abandon their rules, and just wing it.

And when your start to trade without rules, you are prone to making costly mistakes — mistakes that can cost your trading account.

Here are top rules you should consider while making your list of best day trading rules

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1. Always be mindful of the three Es: Entry, exit and escape

Before taking any trade, you must plan your entry and exit. And of course, your escape if things go south (worst-case scenarios). It’s no longer news that the market can swing in any direction at any time.

As such, your plan should be following the trend and making the most out of it. While you are following the trend, you should know when to enter a trade and know when to exit.  That way you will be able to lock in profits and protect your account from the potential dangers of sticking around for too long.

2. Don’t rush into trades

Speaking of rushing into trades, it’s always best to stay away from the markets during the first 15 minutes. The market tends to be rowdy and spontaneous at that time because of panic traders and market orders carried over from the previous trading day.

Also, this period is not ideal for finding reversals. It’s always best to wait for the market to settle and have a bearing before looking out for possible opportunities.

From experience, a good number of pro-day traders stay away from the market at this time (market open).

3. Leverage the power of limit orders

As you may already know, you can execute trades at either market order or set a limit order. A market order tells your broker to buy/sell a financial instrument or asset at the best available price.

However, years of experience have shown that the best available price is not always a profitable price.

A limit order allows you allows you decide on the maximum price you will pay and the minimum price at which you are willing to sell your positions. That way you get to set the parameters however you want. Think flexibility.

4. Be careful with margins

Trading a margin account means you are borrowing money from your brokerage to finance your trades. Pattern Day Traders ( PDT), those who execute more than 4 or 5 trades every day are allowed up to 4:1 margin.

Meaning that they can $120,000 worth of securities with just $30,000 in their trading account. Trading a margin account offers leverage but leverage can either make or end your account. If things go well, you will take in large profits.

And the same goes for when the market swings against you and you get caught in the red zone. So, it’s always best to kickstart your trading journey with a non-margin account.

5. Have a selling plan

It’s common knowledge that most traders spend a greater part of their time thinking of stocks they want to buy and pay less attention to when to sell.

Before buying any asset, you should have an exit plan on standby to secure your wins. If you go into the market with the mentality of playing it by the ears or making plans as you go, the chances are that you will end up losing money.

Also, hope is not a strategy in trading. Always set targets and be disciplined to stick to your trading plan.

In conclusion

Other rules to consider include keeping a journal of all your trades, verifying every source of trading tips, ideas, and start by practicing in a paper account. And of course, learn not to hold onto losing trades and accept losses as part of the process.

There you have it, top day trading tips and hopefully, they pass as the best day trading rules you have been looking for. While checking all the boxes on this list, remember that it takes discipline to make consistent profits. So, develop flexible day trading rules and stick to them.

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