Day trading
is very popular among those who want to earn quick bucks from the market. It’s
practically one of the most sought-after trading styles around. And when you
are day trading, you have to follow written and unwritten day trading rules.
We have
gathered the top day trading rules that you should know about, as well as the
mistakes you should avoid when day trading.
Read more: 5 Day Trading Rules for Dummies
Come
Up with a Trading Plan
The old
adage is still true today: if you fail to plan, you plan to fail.
This
means that you cannot succeed in trading if you play everything by ear. You have
to construct a trading plan which will tell you the specifics of your entry,
exit, and money management criteria.
You must
know that this could be really time-consuming, though it all pays off once you
start the ball rolling.
The benefits
of having a trading plan are not limited to knowing where your trade is
heading. You also get to have a record of the things you have done throughout
your trading career.
Through
comparison and analysis, you can determine which trading plan is effective for
a specific market condition. You can identify the weak parts of your plans. Therefore,
you can always know which part to change and to adjust to have a better shot at
beating the market.
Additionally,
modern technology allows us to backtest trading strategies quite easily over
historical data. Backtesting enables you to see if your plan is plausible and
effective.
Of course,
once you have established the viability of your trading plan, kick it off and
treat it like gospel: stick to it like glue.
Don’t
ever be tempted to trade outside your strategy. That in itself is already a
wrong move and poor tactic.
Read further: 8 Effective Forex Trading Strategies in 2018
Take
advantage of Technology
Even
if age-old dictums still work in trading, you must know that day trading is also
changing. And with the changing
landscape of the day trading industry, technology accomplishes breakthroughs
after breakthroughs.
That
being said, it’s always a good idea to use technology on your favor.
Nowadays,
lots of trading platforms make day trading easier. They provide a wide-ranging
variety of tools to let your analyze and determine trading opportunities.
Backtesting, as mentioned above, lets you test an idea against historical data
before you risk any cash.
Additionally,
you can get market updates and charts via your phones and laptops. That means
faster and more convenient day trading.
Learn
what new features are up for the grabbing. You can never take any kind of day
trading help for granted.
Do
not Take Unnecessary Risks
You
have to accept the fact that day trading entails inherent risks. And you have
to carefully pick which risks you will face.
Some
traders think that the more risks they take on, the higher the reward they can
get. However, this can lead to them incurring unnecessary losses to their
trading capital because of unnecessary risks.
Before
you enter a trade with substantial risk, make sure that the risk is worth taking.
Pick your battles if you want to win the war.
See also: How Much Risk Can You Tolerate?
Don’t
bet something You can’t Afford to Lose
The money
that you will be using in day trading should be money that’s not intended for
any other purposes.
Before
you start trading, you must save up ample amount of money that you can risk
losing in a trade. You shouldn’t risk the money you intend to spend as loan or
mortgage payments. Do not touch the money for your monthly bills or groceries.
Have
a separate fund of cash if you want to trade. This way, even if you lose, your
daily lifestyle will not be significantly affected. Your personal budget will be
untouched. You will still have that nagging feeling to bet something bigger
than your capital, but it’s better to keep your other personal finances secure
before you dive into the market.
Always
Check the Facts
This
can be very exhaustive and time consuming, but it will definitely help you
protect your trades and make informed decisions.
You have
to hit the books and study up on both fundamental and technical analysis. This
is because facts shape up investors’ sentiment. Facts affect market movements.
So being well-versed in facts lets you easily understand the market and know its
next move at the earliest signal.
Read also: Market Sentiment: Bearish vs Bullish
Use
Stop Loss Orders
A stop
loss order is a specified amount that you are willing to lose per trade. It
works in a way that lessens you exposure to risks.
Whenever
your trade reaches the predetermined stop loss level, the trade will
automatically close out, leaving you with fewer losses than you could incur if
you didn’t put that order.
This
can save you from being jittery and anxious over your trade because you know
that you stand to lose only a particular amount of capital. And since emotions
are less, you can focus on establishing a systematic way of doing your trades.
Conclusion
The most
important thing to do is to make sure that your day trading plan is
crystal-clear. Stick to it no matter what, but learn to exit the trade when the
tide goes against you.
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