The Three Most Important Day Trading Rules

One of the keys to being truly a successful day trader would be 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 own boss and thus lead to your own results. By recording and following your entire day trading rules, you'll create a system that reinforces your trading discipline and prevents you from making costly errors. In this article, I'll 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 isn't 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 ensures that no single losing trade will undoubtedly 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 learning to be a consistently profitable day trader is to understand the importance of that time period of day. When it comes to trading opportunities, not all times are created equal. Generally, there is much more volatility and volume in the stock market at the open and close of trading and a pronounced lull in trading activity during the middle of your day. Because day traders need volatility to make money and in addition must overcome their transaction costs, trading in the middle of the day is frequently a bad idea. To enforce this rule, I keep my eye on the clock and drastically reduce my position sizes and risk in the center of the 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 in addition to to gain information about the current market. One of many beauties of trading is that you will 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? MUST I have moved my stop-loss? Did I follow my risk management plan? As any experienced trader will tell you, there are many times where poor trades become profitable while excellent trades don't work out. In order to improve as a trader, it is important that you learn from every single trade you place.

Conclusion

By following these day trading rules, I know that I can be consistently profitable and make excellent risk/reward trades. While  dedust io  may appear to be an abstract principle, I implement it by knowing my stop-loss prior to placing any trade. I'm also alert to the most opportune times to trade and limit my trading when conditions aren't ideal. Finally, I gain insight from every trade I make with a thorough review process. Take time to write down your trading rules to create clarity to your trading and ensure you stay disciplined.