Day trading rules are not optional. Anyone who is serious about becoming a consistently profitable trader needs rules.
Trading is high-pressure game. When money is on the line, decision making becomes difficult. Rules help you perform under pressure and ensures you make optimal decisions.
A record number of retail traders have entered the markets this year. Most have no clue what they’re doing. They treat this like gambling, and then lose all their money.
Day trading with no rules is gambling. Day trading with rules is a profession.
16 day trading rules to live by:
1. No Plan, No Trade
The preparation you do before the market opens is essential. Without pre-defining your game plan, you will not be able to manage your trade successfully. Here is everything you need to define in your trading plan before you enter a trade:
If you don’t have a trading plan, don’t take the trade.
2. Pre-Define Your Risk
Define the worst-case scenario. Watch how much easier managing a trade becomes when you know exactly how much money you will lose on the trade before you enter. Risk proportionally to the size of your trading account. I tell most new stock traders to not risk more than 1% of their portfolio on any 1 trade. Once you develop proficiency and prove you can manage risk, you can become more aggressive.
3. Use Hard Stops
Stop losses allow you to control your risk in a trade. A lot of misconception about stop losses. Some people think hard stops are bad because market makers will see them and hit them on purpose to take you out. This is BS.
The market makers will not move the stock down 10% to stop you out of your 200 shares of $TSLA. Us retail traders are small fish in the markets. Market makers are not paying attention to us.
If you put your stop in the right place, you won’t worry about getting stopped out prematurely. Follow these tips for placing your stop-loss:
Use hard stops. Automate your risk management process.
This can be your best friend or your worst enemy. Margin can make your winners bigger, but also make your losses bigger. Don’t risk it all on one trade. Check out this blog here to learn more about how to use margin (also known as leverage) correctly.
5. Don’t Fight Trends
We saw a ton of short-sellers get smoked this year. Some traders are great at timing trend reversals. For inexperienced traders, I recommend trading strategies that allow you to join an existing trend, vs trying to time the top/bottom.
6. Price Action is KING
Fundamentals will never help you precisely time a trade. The trend matters most. thing that matters is the trend. I’ve seen junk companies run up 1000% before reversing. I’ve seen great companies drop 50%. The “why” matters a lot less than you think. The “is” is what matters.
7. Manage Emotions
In trading, we are own worst enemy. Your emotions make profitable trading difficult. Use these rules here to help you manage your emotions throughout the trading day when things get difficult. One of my favorite strategies to deal with emotions in trading: Take a break. Step away from the computer for a few minutes and collect yourself.
8. Know the Catalyst
You want to be trading stocks that have a reason to move. Earnings reports, positive company press releases. Whatever the catalyst is behind a stock, make sure you are aware of it. Don’t blindly jump into stocks without knowing the full situation.
9. Be Patient for the Entry
Good entries make everything easier. Wait for the stock to come to you. If you are looking to long a stock, wait for the dip. If you’re looking to short, wait for the stock to pop.
10. Be Patient for the Exit
Staying in winning trades is essential for long-term success. Most traders have it backwards: They take profits too soon, and cut their losers too late. Here are some tips for letting your winning trades run longer:
11. You Chase, You Die
FOMO is the death of most traders. They are more afraid of missing a big move then getting a good entry. NEVER chase stocks. Most of the time the stock WILL pullback and give you an entry. This ties in with Rule #9.
12. Wait for Confirmation on Reversals
How many traders blew up shorting $TSLA on the front side. Or blew up trying to catch the falling knife when the market crashed in March. Let the top or bottom pick itself. You don’t need to catch the exact top or bottom to make good money on the reversal play. Focus on catching the meat the of the move.
13. Size in on Winners
Everyone always talks about the importance of keeping losing trades small. It is important, but it is just as important to size into winning trades. If you have small losing trades and small winning trades, becoming a profitable trader becomes difficult. Adding to winning trades. Press while the iron is hot.
14. Don’t Add to Losing Positions
One of the easiest ways to lose all your money. Telling yourself “It’s going to reverse” and you keep buying more. Only add to a position when you’re in the green.
15. Know When to STOP Trading
Overtrading is one of the biggest obstacles traders face. So many traders lose a ton of money from forcing bad trades because they want to make money. You need to know your edge in the markets. This will allow you to know stocks you should be trading, and which ones you should avoid.
16. Trade the Right Stocks
You’re only as good as the stocks you trade. At Bulls on Wall Street, we trade momentum stocks. We want to trade explosive stocks that have the potential to make big moves in a short period of time. If you are not sure about how to choose the right stocks to trade, check out this blog here to learn the 7 best characteristics of the best momentum stocks.
These day trading rules will get you on the right path to success. If you are serious about becoming a full-time or part-time stock trader, check out our Live Trading Boot Camp below.