If you’re planning to day trade, you need to have a set of proven day trading rules to effectively manage any given situation. And the most important thing is to have the discipline to follow these rules.
Furthermore, the most common trading mistake for rookie traders is throwing out their own rules during a crucial situation. Sometimes, they do things without considering the risk and the potential loss, which could lead to disastrous results.
Read more about Beginner’s guide to day trading.
Sure, these trading rules are not your obligation to follow. But they can certainly help you make vital decisions when needed. These are the most effective rules for day trading for beginners.
Effect Day Trading Rules
Before picking forex or stocks, you should have knowledge about the trading procedures and tools. And information about the security you’re trading at, such as company financials, reports, charts, economies, and etc. are also important. You also have to know the latest in the stock or forex markets, or what events that affect the markets. In the absence of knowledge, day trading can take a huge toll on you.
One of the best day trading tips is to do your homework. Keep yourself informed about the selected companies. There are numerous resources out there to take them as your advantage.
Enter, Exit, and Escape
This is not only a rule, but one an essential day trading strategies. You must have an enter price, an exit price, and an escape price in case things go bad.
In other words, before entering a trade, you must know when to get in, when to get out, and what to do if your position moved against you unexpectedly.
Moreover, having an escape price, also known as a stop price, is vital if you want to minimize losses. Determining when to get in or out will help you lock in profits, and save you from potential disasters.
Use Limit Orders, not Market Orders
A market order tells your broker to buy or sell at the best available price at the time of execution. However, best doesn’t always mean profitable.
A market order doesn’t have a price guarantee, but a limit order does guarantee the price, but not the execution.
Having a limit order gives you control over the maximum price you’ll pay or the minimum price you sell. It’s recommended to have a limit order so you can set the parameters.
As you’re getting ready for a trade, ensure that you don’t lose out on decent gains in the greed for more. The markets are unpredictable and it’s ideal to settle down for a smaller profit than losing heavily.
Additionally, don’t regret losing out on a chance. Remember, every small profitable trade will help boost your confidence. It will also give you a chance to try out the strategy again.
Being realistic also applies in having an enter, exit, and escape prices, and having limit orders.
Set an Amount Aside
As a beginner, you have to understand that day trading is risky. Set aside a number of funds that you can trade with and prepared to lose. Don’t include the money that fills your need such as basic living, expenses, and whatnot.
Avoid Margin Trading
Margin is borrowing money from your broker to finance your trades. When used properly, margin can leverage potential returns.
Margin helps to amplify your trading results. However, it’s not just profits but of losses as well if a trade goes against you. If you are just starting in trading, you must first learn how to day trade without using margin.
Learn more about Getting to Know Leverages and Margins.
Avoid the Rush Hours
Traders placed many orders as soon as the markets open in the morning. Therefore, they contribute to price volatility. The first 15 minutes are often panic trades or market orders placed the night before.
You should avoid this time period while also looking for reversals. If you want profits, it’s best to wait until you’re able to spot profitable opportunities. Though the rush hours offer opportunities, it’s better to avoid that time as a novice trader.
Control your Emotions
There will always be a time when the markets test your nerves. Whether they are confidence, greed, hope, or fear, you must learn how to control them. Only decide with logic and not emotion. It may be difficult at first, but only someone who can learn this can be successful. A great way to practice is trading with a demo account.
Read more about 5 Emotions that go against trading.
Further, at the first hint of losses, don’t panic. This is a common problem for beginners as they end up making impulsive trades that cost them huge money. For you to become successful, you must accept and willing to lose before you win.
Anyone can be a day trader, but only a few are successful. But as long as you follow these day trading rules, you’ll always be on the right track to becoming successful trader.
You can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!