The rules for new day traders are simple, but many new traders lack the self-discipline to implement them fully or correctly. The average person’s psychological behavior does not match the behavior of the market. Greed and fear cause new day traders to react in precisely the opposite manner than is required.
To become a successful day trader, you’ll need to develop self-discipline and be willing to accept and respect the following rules indisputably.
Ten Essential Day Trading Rules
- Don’t read too much instructional material at the start. Stick with a single book. Information overload will take you out of focus and confuse you. The Market Whisperer, an Amazon best-seller, is an excellent choice for new day traders. After some months of trading, once you’ve gained experience and internalized the basic principles, then read more, and you’ll become a better trader.
- Find an experienced day trading mentor who can walk you through your initial steps or join a day trading course. Self-study is not a sufficient solution. Just as driving can’t be learned only by reading a textbook, so it is with trading.
- Before trading with real money, participate in a trading academy or trade in a demo system that will let you practice. But don’t use the demo for more than a few days. Using it for longer creates the dangerous illusion that you’re immune to any kind of psychological effects resulting from the pressures of trading in real money
- Join a proprietary day trading team and get a funded account that you can trade without risking your own money or open an account with a broker and deposit a sum suited to your financial abilities. Don’t risk a sum of money that will endanger your financial status. A too-large amount will cause you tremendous psychological pressure and lead you to break discipline, with dreadful results.
- Don’t trade alone. Join an online day trading room, listen to what experienced traders have to say, and then try to emulate their actions. In time, use the trading room to develop your own trading system.
- Trade in small quantities. Your initial goal is to successfully conquer the market while trading in small quantities and creating minimal profits or losses, all for the sake of your learning curve and not for getting rich quickly. You should resist the urge to increase the number of shares traded until you have greater control and stable profitability.
- Don’t over trade. Limit the number of your trades to five trades per day. Over-trading is one of the main reasons for losing control and discipline.
- Keep a trading diary in which you list every action you take, with notes and conclusions. When we don’t write the details down, we forget them.
- Be prepared to lose money. Trading is a hard profession to learn. Keep in mind that most traders lose money during their first trading year, but that doesn’t mean you are a bad live day trader. It just means you’re learning the ropes.
- Read your introductory day trading book a second time once you have some experience with live day trading. Only in the second reading, after you have traded with real money, will you truly understand the significance of the information.