12 Day Trading Rules

02. Nov, 2010 1 Comment

In order to be a successful day trader once must develop guidelines to follow on a consistent basis. Over the years I have developed my own trading rules and have adapted them as I continue to evolve as a day trader.

Twelve Trading Rules:

1. Razor sharp focus on your trading platform: This is my most important rule. As traders we fall victim into negative habits. While trading as we are waiting and probing our setups we can easily get distracted by emails, chat rooms, phone calls, or just browsing the web. As a result we avoid and distract ourselves and miss our setups, which causes use to enter too late or jump onto a marginal trade. This is a recipe for disaster and depletes your psychological capital. This has led me to create my specific trading rules for my trading room (no emails, no phone calls, no browsing the web, etc.)

2. Know your Entry, Exit, and Stop BEFORE you enter a trade: My success in trading is dependent on the amount of certainty that I have in a trade. The quality of my trade is dependent on the amount of uncertainty I can handle. As a result, when the entry and exits are known variables there should be no emotion in trades. Typically, when my all three price points are known, I have eliminated the uncertainty of the trade. I have also developed a checklist for my entries.

3. Maintain and record trades into a trade journal: Maintaining a daily trade journal can be one of your most valuable tools as a trader. The trade journal enables you to track, analyze, and improve your trading. These tools have helped me refocus on trades that have worked for me and avoid the trades that have gotten me in trouble. The more detailed your trade journal the better trader you will become. I also rate my trades as #1, #2, and #3 trades in my journal. The #1 trades being the best with known entry, exit, and stop prices.

4. Trade with the market direction/trend: The mantra throughout my day is, “what is the market trying to do and which direction is the market trying to go”. Being on the right side of the market makes trading a lot easier and fun. On the flip side, if you’re caught on the wrong side, the market will punish you for being wrong. I use Market Profile to help me decide on the structure of the market and which direction it will trade.

5. Don’t trade around news announcements: This is plain and simple. I don’t trade around news announcements. There is just too much uncertainty. It can make you or kill you. There is just too much uncertainty around and at news announcements.

6. Prepare for the trading day: Similar to playing sports, I like to prepare for my trading day by taking a 30-45 minute walk early in the morning to clear my mind and get the mind working. It’s like a warm-up for the market opening. I will then sit at my desk and input key information on my day trading worksheet. I will review news, globex numbers, support/resistance numbers, and review numbers from the previous day trading.

7. Manage your state (emotional, physical, and language): To be a successful trader we have to be able to manage our emotions which things get a little challenging. We should be trading while we are in the right frame of mind and totally focused on our trading. Taking care of our bodies is critical in any endeavor. You are what you eat and you think as what you eat. Foods really alter your biochemistry. It’s important that we are well rested and eat well. Language is a critical component. We are what we focus on. We cannot afford to poison our conscious and subconscious mind with negative self-talk.

8. Review trading questions: There is a lot of power in questions. If we ask the right questions, our mind will work hard to answer them. Again, we get what we focus on. I have developed a list of 10-15 questions I keep on my trading desk that are directed to help with my trading. It has helped me make significant distinctions in my trading and improved my bottom line. It has helped me avoid marginal trades.

9. Continued education: Reading books on psychology, trading, novels, and non-fiction helps improve my trading and shifts my focus onto other things to keep the mind fresh. Webinars, seminars, and personal coaching are also very helpful. Just make sure you do your due diligence. Attending the Trade Expos has been very helpful with free seminars and interesting speakers. It is also helpful to research new platforms and tools to enhance your trading. It also keeps you up to date as to what’s out there and how people are trading and who you are trading against as certain levels.

10. Take profits when given: We hear it all the time, don’t be greedy. I can’t stand greedy people. Many times I have been in trades where I hit my profit target and didn’t exit the trade thinking the move would continue to only see it go against me. I learned the hard way, but I learned. When the market is being generous by giving you money take it or it will take yours. There is no doubt about that.

11. Manage bad trades: When a trade goes against you, get out. Learning to lose was quite a challenge for me. Interestingly, once I learned how to manage my losses. I wasn’t losing as much and able to exit bad trades with small or no losses.

12. VERY IMPORTANT – Be good to yourself: We are our worst critic and tend to punish ourselves when trading poorly. Trading is one of the hardest professions, yet most fulfilling and rewarding. It’s critical not to magnify our struggles and challenges, but to focus on solutions on how to improve our trading by asking the right questions and really digging into what is going on in our minds. Majority of the time it is psychological rather than technical. Be sure to take breaks and get away for trading. It is vital to engage in not trading activities.