If you are day trader, it is always essential to follow set of rules to manage any kind off trading scenarios. It is even more important that you have the discipline to follow these rules without any emotions, sentiments and greed coming your way. No matter what the circumstances are, these rules will help you be profitable in the long run.
Rule 1: Do you have a trading Plan?
A trading plan for day trading is nothing but a set of rules written with proper trading money management principles. A trading plan could be developed by having sufficient knowledge of technical analysis. With today’s technology, it is much easier to test a certain set of rules for profitability and perform backtesting before using it for real trading. One must always stick to the plan, even if some trades turn out to be winners, it is still considered dangerous.
Rule2: Rely on Robust Technology
While you are in to trading intraday, it is very important you have access to historical intraday data, it could be 5 min, 15 min, 30 min..etc. Having historical data will help you get clarity on the trend and take positions easily.
Rule3: Know your Entry, Exit & Stop Loss
Even before you place an order, make sure you are well aware about these 3 things as it is essential to minimize losses.
Rule 4: Do not trade in the first 15 min of the market open
First 15 min, markets are extremely volatile, novice day traders should simply avoid taking such trades and wait for markets to settle down and wait till you are able to spot rewarding opportunities.
Rule5: Trading is serious business
To be a successful and consistent trader, one must approach trading as a business and not a part-time hobby, business. It requires a lot of focus, commitment and dedication to make consistent profits.
Rule 6: Never loose your existing capital
By maintaining a proper risk reward ratio and a clear trading plan, your capital meant for trading purpose must remain intact and must never go into deeper loss. For Eg, if your risk reward ratio is 1:2 and you win 7 trades out of 10, and 3 trades go into loss, you can safely assume that you are very clearly in profits and your capital remains safe
Rule 7: Loose only how much you can afford to
At any point, do not risk more than 1% of your trading capital in one session.
Rule 8: Do not leave your existing profits
Not only is it important to place stop loss but equally important not to leave any profits on the table, suppose you buy 100 shares at Rs 50, Price moves to Rs 55, while your target is Rs 58, assuming the price moves back from Rs 55 to 51, and stop loss earlier was Rs 48. We can always move SL to Rs 52, so that we break even and make slight profits.
Rule 9: Never take tips from uninformed sources
Taking tips from an informed source will always put you in a chaos and dilemma, Knowing what stocks to buy and when to sell and within what time frame is all a complex task in day trading, Always make sure your advisor is registered with SEBI.
Rule 10: Your Trading System is Key
Your Trdaing plan/System must always have stood the strength of time, meaning it must be backtested over a period of atleast five to seven years and must have generated consistent profits over time with minimal losses.
I am trainer and research analyst at CapitalVeda Financial Research, Apart from writing research reports on technical and fundamental analysis of stocks, I am very passionate to teach and impart knowledge on capital markets to deserving candidates willing to learn and make profits. I am also a farming enthusiast and love to work on real life farming challenges. Enjoy travelling a lot. Trading, Investing and Travelling makes a great career combination. Isn’t it!