There are many day trading rules that every trader should know before they dive off into attempts at making profitable trades in the market.
In this article, we are going to review some of those rules to prepare you to test yourself without committing some beginner's mistakes that could really discourage you from the amazing trading you can be!
Day trading is a strategy within the commercialization of financial assets. It requires traders to buy and sell contracts constantly, with operations placed and completed on the same day.
It is definitely a method in which traders can’t remain passive, and that’s one of the reasons why we can see many struggle to sustain this strategy over long periods of time.
If you engage in day trading, your profits can sometimes depend on the number of trades you make, rather than the individual performance of each trade.
In other words, you will have a much better chance at profiting by being consistent with your activities and good trading habits.
In most cases, the returns from a single trade will not be significant. Day trading rules are bound by this dynamic, which you must accept and not try to redefine, and that is why it is so important that you know it thoroughly.
Choosing the Right Market in Which to Trade
In order to engage in day trading, the market of choice must meet certain criteria. First of all, it must be a highly liquid and transparent market.
A liquid market is one that has a high degree of convertibility of the asset into money without affecting its value. As a result, some markets can absorb contracts at any time without affecting the selling price.
The transparency of a market refers to the possibility to know, at any time, at what price we have managed to agree on for our trades.
Markets that are not so transparent can change the price of the purchase order we have seen, without consulting us beforehand.
On the other hand, and this is a fundamental day trading rule, the market we choose to invest in must allow us to open short-term positions on our own, on a personal computer and from anywhere in the world.
Consistency is Key
Day trading is a form of active trading in which the trader opens and closes trades on the same day. Some traders open and close a transaction in a matter of hours, minutes or even seconds.
Day trading rules are useful for these traders because they allow them to make quick decisions according to the strategy, without being carried away by their impulses or emotions.
These rules include, not abandoning the activity when the expected results are not seen in a short period of time. In order to see results, it is essential to start a trading journal and review it regularly.
This will help you design a plan to implement the strategy and will allow you to summarize all events, including both your wins and your mistakes.
When you make many trades a day, you may forget the context in which you opened a trade or what led you to a profit or loss.
A trading plan does not only consist of entry and exit price information, it should also include stop loss, trading volume and other factors that influenced your decision to enter or exit a trade.
An extremely important day trading rule is to keep a record of all of these thoughts, feelings and transactions.
In this way, when you analyze your profits and losses each week, you will be able to understand your strengths and weaknesses to optimize your plan.
But for that to happen, you must first sustain the practice over time. Just a few trades can not give you a clear picture of what kind of trader you are.
To start this practice, we recommend you to do it with a trading simulator. This way, you will be able to strengthen your knowledge and your trading plan without the pressure of operating with real money.
You can take a look at the evaluation programs that we offer at Uprofit, designed so that each trader can operate in their own way, with clear and convenient conditions.
Choose the Best Platform
The importance of this day trading rule lies in the high speed at which prices move in the markets where this strategy is used.
If the platform used does not provide accurate data, together with indicators that help to make quick decisions, it can harm the traders' performance.
NinjaTrader is our trusted trading platform. It is one of the leaders in the market, with more than 500,000 traders who find support in its software to trade different types of financial assets.
This free platform allows traders to visualize and analyze the market, elaborate advanced charts, develop trading systems, use and create indicators and simulate trades.
Thanks to these, traders can find and take advantage of trading opportunities more easily.
NinjaTrader is suitable for traders of all levels, whether they are just starting out or are experts in the area.
At Uprofit, it is the platform that we recommend the most to our traders because it has a powerful and easy to use trading platform, in addition to having first class support.
Learn and Apply Technical Analysis
A golden day trading rule is the application of technical analysis, since it is the best way to visualize what is happening in the market.
It allows traders to see trends in the form of charts, which can be a great help if they work in favor of them.
A good interpretation of technical analysis can tell us the right time to open and close a position in the market.
Charts do not show what is going to happen, but what has already happened, and they do not move by free will, but respond to price movements caused by variability in supply and demand.
There are several indicators that day traders can take into account when looking for a buying or selling opportunity, but these can only confirm what has been previously seen thanks to the analysis performed.
Therefore, learning to perform technical analysis is a mandatory day trading rule, since it leads to the development of an accurate vision and an objective opinion, which allows one to have a criteria on what these tools indicate.
Below, we share some of the most used indicators for day trading:
- Trend indicators: they help traders identify a direction in the predominant market trend, according to selected time periods. Examples of such indicators in futures are the Moving Average (MA) and Bollinger Bands (BB).
- Volatility indicators: these are used to assess the volatility of the price of a financial instrument. Examples of this type of indicators are Bollinger Bands and ATR (Average True Range).
- Momentum indicators: these are used to estimate the strength of a trend and its ability to continue. An example of these is the Relative Strength Index (RSI).
Usually, intraday traders draw horizontal support and resistance lines, based on historical price action, to know when there might be an obstacle in the near future for an identified trend.
However, this is not a strict day trading rule, as each trader develops their own method.
Study and Develop Your Own Day Trading Rules
When day traders are not actively operating in the market, usually many of them take some time to study the futures markets.
They monitor tendencies and dive into the big amount of information about futures trading, like investigations, analysts notes, news or share the knowledge with a fellow trader.
All the above-mentioned study methods are fundamental day trading rules, because these are the only ways to be prepared to speculate over the futures market without quitting before time due to frustration, nerves, or lack of consistency.
These are some common techniques day traders use to make profits:
- Trend Trading: this kind of trader buys an asset that is on the rise, and sells the ones that are dropping. They are trading with the current trend.
- Counter-Trend Trading: in this method, traders expect that prices on the rise will fall, and prices that are dropping will start going up, and trade based on that notion. So, they are trading against the trend.
- Range Trading: the traders that follow this tactic buy assets when they are at their lowest price and sell them when they are at their highest. It takes knowledge of the ranges of different markets. So they are trading between 2 specific areas.
- News Trading: this technique consists of trading with an expected pop that happens when a major event or high impact news comes out. These traders look to take advantage of bigger movements when anticipated news is announced.
Having a detailed trading strategy that has been tested and works in various market conditions is a key day trading rule for becoming a successful trader.
And for this, you can test and adjust your strategy as many times as you need with a funding test.
One message we would like to leave you with is that if you decide to day trade, you should know from the start that losses are as much a part of day trading as are profits, so you must be patient and consistent in your tactics.
Consistent profits will start to come once you understand the market dynamics and learn to control your reactions.
The awesome benefits and the amazing opportunity to make a living out of what trading offers should serve as motivation in the face of any loss.
In this sense, the essential day trading rule is to do it with the motivation to learn and grow a little more every day.