Day trading is a riskier venture than trading in the stock market. Hence, novice traders need to understand the basics and the concept of trading before they begin to avoid losses and significant setbacks. However, it is also advisable for individuals to invest only the amount they can afford to lose without facing any financial difficulty.
Most new traders in day trading tend to lose money because of the volatility of the stock market. This shows that the trader lacks knowledge about day trading or is not following the standard rules. Here is a complete set of day trading rules you must follow when you enter the trading industry.
Standard Rules Of Day Trading
Be Knowledgeable
Knowledge is the best power a person can hold. Here by the term knowledge, we mean information about the basic trading processes, information about the stocks and the stock market, trading tools, keeping track of the events which affect the stock market and many more. Without the proper knowledge, day trading can become a more complex and risky venture.
As a rookie trader, you can select the companies you want to select and keep a constant eye on their market movements. For this, you also need to visit their website regularly. Further, you can make an informed and intelligent decision for trading.
Be Realistic With Your Approach
A realistic approach to earning profits is essential while day trading. As you scale up the trading procedure, you must make sure that you do not lose out on the decent gains in greediness for more than that. As the stock markets are tricky, settling for smaller profits is better than incurring heavy losses.
Also, if you feel that a particular trade could be your chance, do not miss out on the same, or you might regret it later. However, if you are unsure, you can purchase the same stock when its price dips. Generally, every small profitable trade comes with lots of confidence and optimism. Moreover, it gives you the ability to try the same strategy again. Hence, you must be sure and have a realistic approach to your trades.
Entry And Exit
Not knowing the entry and exit points can cause unnecessary confusion and compel you to go for the wrong trade. However, if you know at which price to enter and at which price to exit, you avoid the unnecessary hassle of booking a lump sum profit for yourself. Make sure you do not play it by ear. Go by your preset levels for every stock you plan to trade. Then, if you feel that the market is unfavorable, you can exit to cut losses.
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The Number Of Stocks To Trade
As a beginner trader, you should focus on trading a maximum of one or two stocks in the day trading session. When you have only a few stocks in hand, it becomes easy to find more future opportunities and track new stocks easily. On the other hand, if you trade with multiple stocks at a time, you might miss out on the chance to exit the market at the correct time.
The Rush Hours
As soon as the market opens, many investors and traders rush to execute their trades. This leads to high surge charges and contributes to price volatility. As a seasoned trader, you must recognize the market’s working patterns and select your working time slot accordingly.
However, as a novice trader, it is advisable that you observe the market for the first 15 to 20 minutes and then make your initial move. The middle hours are less volatile while the price movement begins to pick as you near the closing bell. Even though the rush hours are full of opportunities, it is better that you avoid this time for trading.
Limit Your Orders
When you place an order in the market, the execution only takes place at the best price at a specific time. As such, there is no guarantee of the price in the market order. However, limiting the orders can guarantee the price but not its execution. Limiting the orders helps in trading more precisely where you set your price for purchasing and selling. The price you quote should not be unrealistic but executable.
Have A Control Over Your Emotions
There can be times when the stock market will test your patience level. As a day trader, you must know how to keep up with confidence and hope, set aside your greed and keep your fear at bay. The decisions you make must showcase proper logic and not an emotional way. However, this can be tedious for a novice trader, but a person who learns to control their emotions during trades can be successful. Also, before you plunge into the real-time zone, you must try the stimulation exercise for yourself.
The Bottom Line
Day trading calls for dedication, time, skills and discipline. You can develop your skills over time as you participate in the market. First, however, you must follow all the basic rules and regulations for trading to maximize profits and cut losses.
