Rules to follow for Day Trading:
The quick profits and the no worries about the overnight exposure of the trade coupled with small margin requirement are the reasons that attract the multitude of traders to day trading.
But things can go terribly wrong.
The dreams of quick profits can turn into nightmarish losses within the same trading day.
To avoid such situations, one has to work with a set of rules.
These rules will keep you grounded, protect you from huge losses and will ultimately reward you for disciplined trades by way of profits.
Ignore them and you are into gambling territory.
Rule 1: Do not trade without a stop loss
Any trade can go wrong. We expect to make a profit but care is to be taken to manage the loss. A big loss can have psychological impact on other trades also besides depleting the capital.
A sensible stop loss should always be there to protect you.
In the above illustration you can see, If my stop loss is not triggered i would have lost my entire premium!
Rule 2:Trade with comfortable position size
There are times when a trader is very sure of the direction of the trade. It looks like a certain profit.
At such time there is a tendency to go for a bigger trade.
Do not do it.
Trading is all about keeping your losses manageable. Leave the profits to the market.
If you are comfortable trading 1 Lot, keep trading that.
Go for bigger position when the financial cushioning for bigger loss is available and not when you feel like it.
Rule 3: Leave the Profits to the market
We have fixed the loss limit by Rule 1.
Now is the time to talk about taking profits.
Remember, these are day trades. You are going to exit a few minutes before the close of market either with profit or with a loss.
Do not book profits with pre-determined targets.
It may not make sense to most of us but one must try to maximize the gains even in day trades. You never know where a stock is likely to go.
You booked a profit at 1% and the premium goes up 5% in a day.
Is it not a golden opportunity missed?
Have patience in the trades that go right.
Keep the stop loss trailing and wait for the profits to come to you.
There was temptation all the time to book a profit but I kept waiting and kept changing the stop loss.
Finally was stopped out at 420, netting a profit of about Rs. 12400 in this trade.
The rule ultimately becomes: Limit your losses, not your profits
These three rules have served me well so there is no point in adding many more. Keep the trading simple.
Have faith in your trading plan, here is my net gain!
Have a strong belief that money can be made from day trading.
Do not trade when under stress whether financial or emotional.
Thanks for reading!
Do you want to watch my trading video, click below to learn how my managing simple rules one can become profitable trader!