Day Trading Tips and Rules

This page is about day trading tips, rules and advice, that I feel will help day traders, as well as swing traders avoid typical costly beginner mistakes.

These day trading tips, rules and mistakes are not in any particular order of importance. Some on the list below, you may not feel are important at first, until you gain more experience and understanding of this business.

  • Make a written trading plan. If you trade without a well thought out plan, you'll find yourself wandering from strategy to strategy, from system to system and from market to market without a sense of purpose and direction.
  • Trade first with a trading simulator. Don't trade with real money until you've proven to yourself, that you can make simulated money. Many of you will save yourselves a lot of money by taking this advice.
  • Trade with an adequate day trading account size. The pattern day trader rule states that you must maintain a minimum account size of $25,000. That's minimum. You're most likely going to have a string of losses when first starting out, so plan to have more than that to cover those losses and keep the account balance above $25,000. Unfortunately, if you want to trade stocks and your account is too small, this is one of those day trading rules, that might force you to have to take a look at other markets, such as emini futures (ES, NQ, CL, etc.) that don't require as high an account balance
  • Don't ever trade without stops. The only thing I can say here is.....if you're considering trading without stops you're not ready to trade yet. That goes for using mental stops too. In my opinion, just thinking of where you'll get out, if the trade goes bad is practically the same as not having placed a stop order. If you do this, you will eventually suffer the consequence of taking a very large loss. It's just a matter of time and then you'll start using stops on every trade.

  • Don't set initial stops too wide. If the stop on the trade is too wide you may not be able to make a large enough profit to justify taking the risk on the trade. The ratio of risk to reward potential simply won't exist. At least not for a day trade.
  • Don't take profits too soon. Here's one of the best day trading tips I can give you. Contrary to popular belief, you can lose money taking profits. Why? Because, most day and swing traders will be trading systems that by their very nature will have less than 50% winners. Which means your winners must be a multiple of your initial stop or you are bound to have a negative system expectancy and lose money.
  • Don't trade on FOMC Fed Meeting days . Just take the day off and do something fun.
  • Understand the importance of day trading systems components .
  • Trade systems with positive expectancy Learn about stock market trading expectancy.

  • Thoroughly understand the characteristics/statistics of strategies and systems before you trade them. If you don't put the time in to research, you'll bail out on the system or strategy the first time you hit a losing streak or drawdown. You just won't have the confidence to continue risking your money, unless you are intimately familiar with the drawdown and losing streak statistics of the system. You'll have a much better chance of being able to trade through a system's losing streak of six consecutive losses, for example, if you have thoroughly tested it and see that it is a fairly common occurrence to hit six losses in a row, before moving on to new equity highs
  • Understand position sizing and trading money management. If you take away anything from these day trading tips and rules, please get this one right. Don't put all your money or risk too much on one trade. Simple, but this is a very common mistake.
  • Have a basic understanding of trading statistics and statistics in general. If you've never taken a college course in statistics, take this day trading tip and go to the library or book store and pick up a book on basic statistics. The business of trading has a lot to do with the collection, analysis and interpretation of numbers and data. Knowing just the fundamentals, is all you need.

Additional Day Trading Tips and Rules

If you found the above day trading tips and rules helpful, I have two other pages that you might also find useful:



ARE YOU READY TO DAY TRADE?

Go through these quick checklists first before risking your money. You might find you have more homework or preparation to do before jumping into the day trading arena:



day trading tips and strategies book cover