One of the keys to being a successful day trader is to have a summary of rules that you consistently follow. Unlike a normal job where you would have a boss looking over your shoulder, as a day trader you’ll be your own boss and thus lead to your own results. By writing down and following your day trading rules, you’ll create a system that reinforces your trading discipline and prevents you from making costly errors. In the following paragraphs, I’m going to share my three most important day trading rules.
Rule #1: Manage Risk On Every Trade
This rule is really the foundation of my trading philosophy. This means that on every trade I make, my first consideration is not how much potential profit I possibly could make, but how much cash I could potentially lose. daytradefeed.net/tag/matthew-poll-day-trading/ Too many traders focus an excessive amount of on the potential profit and overlook the importance of risk management. Before I make any trade, I know what my downside is and the price at which I am going to exit the trade if it goes against me (my stop-loss). This ensures that no single losing trade will undoubtedly be catastrophic. As a trader, my goal is to hit consistent singles and doubles and not necessarily home runs.
Rule #2: Limit Midday Trading
Another key to learning to be a consistently profitable day trader is to understand the importance of that time period of day. With regard to trading opportunities, not absolutely all times are created equal. Generally, there is a lot more volatility and volume in the currency markets at the open and close of trading and a pronounced lull in trading activity through the middle of the day. Because day traders need volatility to make money and also must overcome their transaction costs, trading in the center of the day is frequently a negative idea. To enforce this rule, I keep my eye on the clock and drastically reduce my position sizes and risk in the center of the day (generally from 10:00 am -2:00 pm CST).
Rule #3: Review Every Trade I Make
I view every trade I make as a learning experience, both to learn more about the strategies and techniques I’m using in addition to to gain information about the current market. Among the beauties of trading is that you get instant feedback on your own decisions. In this review process, I focus my attention not on the results of the trade but on the decisions I made. Was my position sizing ideal? Should I have moved my stop-loss? Did I follow my risk management plan? As any experienced trader will let you know, there are plenty of times where poor trades end up being profitable while excellent trades don’t workout. In order to improve as a trader, it’s important that you learn from every single trade you place.
Conclusion
By following these daytrading rules, I know that I can be consistently profitable and make excellent risk/reward trades. While risk management may sound like an abstract principle, I implement it by knowing my stop-loss prior to placing any trade. I’m also alert to the most opportune times to trade and limit my trading when conditions aren’t ideal. Finally, I gain insight from every trade I make with a thorough review process. Take the time to write down your trading rules to create clarity to your trading and make sure you stay disciplined.
