When
it comes to day trading, it’s imperative that you have rules to follow. That's also true for other types of investments. This will
benefit you tremendously. For one, such rules serve as guides for you to manage
any possible scenario. More importantly, you as a day trader must have the
discipline to follow the rules we’re about set. If you decide to put the rules
in the back burner, you should be ready for disastrous results.
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| There are rules that you ought to follow if your serious about day trading. |
The following
are the 5 most important rules that a new day trader should follow.
Day
Trading Rule #1: Plan Your Entry, Exit, and Escape
Entering
the market is just like entering a relationship. Not to be too cheesy about it,
but you must know when you’re ready to commit. You must know when to call it
quits and exit. And you must know when and how to escape in case your partner
turns out to be a psychopath. It all applies to day trading.
Once you
decide to enter, your course of action must be clear to you. You cannot just
play it by ear all the time. You must know what to do if the tide goes against
you. To be frank, that’s what usually happens.
Escaping
the trade is especially important if you want to minimize losses. This is also known as stop price, and can be
considered your “savior” from potential disasters.
Day
Trading Rule #2: Don’t Trade in First 15 minutes
Avoid trading
during the first 15 minutes of the market open. Why? Because the first 15
minutes is the “panic time”—when traders execute panic trades or market orders
that were placed the night before. It’s much better to wait until you can spot
rewarding opportunities. This is what pros do, dummy!
Day
Trading Rule #3: Use Limit Orders
Use limit
orders, and avoid market orders. The latter only tells your broker to buy or
sell when they spot the best available price. Here’s the thing: the best is not
always profitable.
During
May 2010, a “flash crash” occurred, revealing the disadvantage of using market
orders. When market orders were triggered that day, many sell orders were
executed at 10-, 15-, or 20 points lower than expected.
If you
use a limit order, however, you have the control over the maximum price you’ll
pay or the minimum price you’ll sell. You have the power over such figures.
Day
Trading Rule #4: Avoid Using Margin
This is
a big NO for beginning day traders. When you use margin, you borrow money from
your broker to fund all or a part of the trade.
If you
know how to use it properly, margin can increase your potential return. The catch
is that if your trade goes around and bites you, your margin will amplify your
losses.
Day
Trading Rule #5: Have a Selling Plan
Many
new day traders spend tons of time thinking (and sometimes, daydreaming) about
the stocks they plan to buy. Oftentimes, these same traders forget to consider
when to sell.
Going
back to rule number 1, you must know before your enter what course of action
you would take. And that does not only include what and when to buy, but also
what and when to sell. You have to envision everything. If possible, know the
moves of the market before itself. That’s the way to go.
Conclusion
It’s
true: anybody can try day trading and anyone can hit the jackpot at the first
try. However, the goal is to consistently make profits out of it. Few actually
possess the discipline necessary to achieve that goal, but that doesn’t mean
you shouldn’t try. The rules we have just given you will definitely help you a
lot.
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