Traders often ask me to provide them with a guide; something that will allow them to improve their odds of making good money with the minimum amount of risk while day trading. They think that I have some secret information that enables me to take profits out of the markets in a consistent manner.
On the other hand, I tend to follow certain simple rules. Yes, day trading is simple if you are willing to look at the simplest possible explanations. Never try to complicate the scenario because the market itself is a complex entity.
Without much delay, here are the rules that I follow religiously.
1) Familiarize with the market that you wish to day trade. It is true that the price action keeps on varying for different markets. Some of the markets are extremely choppy while the others tend to trend. Before jumping in, take some time to familiarize yourself with the price action of the market.
2) Take some effort to prepare for the day. Just like any other business, day trading requires some preparation from your end. Do not think that this is a way to get easy money. Look at websites that feature business news articles to get a hang of the global events.
3) Stick with your day trading plan. This is very important if you are currently in a losing spree. When too many bad trades begin to accumulate, traders tend to stop following their original trading plan. Strange ideas might begin to flow through their minds – leading to more losses eventually.
4) It is not a good idea to be greedy while day trading. Greed can cloud your sane mind and it will force you to place bad trades. While in the green, just take what you can get and close the shop for the day!
5) Losses are essential to day trading. Some of the best day traders will go through phases of losses. That does not discourage them. Your trading plan should come with elements to control the losses on every trade. Think of it as writing a test. You need not have to get every answer correct. It is the final score that matters.
6) Chasing the market is not a good idea. Some days, you might miss a particularly appealing trade. Instead of jumping in late, it is better to look for price retractions. If it is meant to be, the price will come and touch your desired level!
7) Overtrading is a strict no-no. The brokers will ensure that a trader who overtrades will never remain in business for a very long time. Your day trading strategy should contain minimal entry points in a day. Else, you will end up paying a lot more on commissions to the broker.
8) Move with the flow. When the prices are surging, look for retracements to buy. Likewise, when the prices are falling, look for opportunities to sell. You can be a strong swimmer. However, you will never find success swimming against the tide.
9) Profits are essential; but take steps to protect your existing trading capital too. Think of it as the oxygen supply carried by the divers. When the oxygen in the tank depletes, they will die. Likewise, take steps to protect your trading capital by avoiding overtrading.
10) News announcements. Please be cautious while trading news announcements. Never remain in position before important news flow. The price will usually spike either ways (thanks to the high frequency trading programs).