11 Day Trading Rules That Work
By Galen Woods ‐ 6 min read
The essential day trading rules for every profitable day trader. From trading plans to risk control, these 11 rules cover the ground for trading success.
You can have 1001 day trading rules. But if you don’t remember them, they are useless. No one follows rules that they don’t recall. The result of the 1001 trading rules is chaos and a trigger-happy day trader.
Hence, here, we have distilled 11 day trading rules together with tips to help you stay on the path.
- Day trading is not investing.
- Day trading is not gambling.
- Plan your trades.
- Avoid the open.
- Review your trades.
- Have a stop-loss
- Have a target.
- Take the best trades.
- Be in control.
- Trade small.
- Accept losing days.
Day Trading Rules Before You Even Start
These are the absolute ground rules.
If you don’t internalize them, don’t even start trading.
#1: Day trading is not a form of investment.
Day trading is not a form of investment. It is not part of the stock/bond portfolio that you have for retirement.
Day trading is risky, and you stand to lose everything (and more) if you fail.
You must accept this fact before you begin this endeavor.
#2: Day trading is not gambling
At the same time, day trading is not gambling.
If you are not going to take it seriously and put in hard work, do not even start.
Tip For Adhering
The first two rules seek to orient your attitude towards day trading. Start with the right mentality and expectations, and these “rules” are already with you.
#3: Plan for everything
And I mean everything.
Imagine all the contingencies and plan for them. Plan even for what you leave unplanned, which means planning when to use your discretion.
A peak performance trader is totally committed to being the best and doing whatever it takes to be the best. He feels totally responsible for whatever happens and thus can learn from mistakes. These people typically have a working business plan for trading because they treat trading as a business.
- Van K. Tharp
Some essential aspects include:
- Where to trade
- When to trade
- What instruments to trade
- What is your trading strategy, and how to execute it
- How much to risk per trade
- Broker, internet, computer, and what happens when they fail to work
The trading plan is a work-in-progress. Keep refining it and add to it.
Tip For Adhering
- If you have your trading plan on your computer, open and review it before each trading session.
- If you have it printed out, place it beside your trading computer where you can see it.
The Alpha and Omega of A Trading Session
These are two straightforward rules for the beginning and after the end of each trading session.
#4: Alpha - Sit on your hands for the first 15 minutes of the session
The first 15 minutes are usually very volatile, without much price action for analysis. So sit on your hands for the first quarter of an hour and observe the market tone.
Over time, this practice will help you grasp the price action context for analyzing the rest of the session.
If you want to consider a trade right after the 15 minutes, look at the opening range scalp trading strategy.
#5: Omega - Review your trades after each session
After each session, there is a learning opportunity.
Each trade contributes to a feedback cycle that can improve our trading performance. Hence, reviewing your trades is critical to boosting your performance.
Tip For Adhering
Each trading session starts with doing nothing and ends with reviewing everything. This is the Alpha and Omega of each trading session.
The Actual Day Trading Rules
Now, we arrive at the rules you employ actively throughout the session, and for each trade you consider.
#6: Use stop-loss orders
Every technical trader must use a stop-loss order. We must always know how much we stand to lose and accept the possibility.
If you disagree, I hope you reconsider.
#7: Use limit orders to take profits
Day traders close their trades before the session ends, so the profit potential is smaller than what’s possible for swing and position traders.
Hence, having limit orders in place to grab our profits is a good idea. Unfortunately, waiting for the bull run of the century is not for day traders.
Use a trading platform that allows you to enter stop-loss orders and target limit orders together with your trade entry. For instance, you can use Ninjatrader’s Advanced Trade Management feature to automate this process.
Tip For Adhering
By programming the orders into your trading platform, you will not fail to follow these rules.
#8: Take only the best trades
Be very selective about the trades you take.
For most day traders, the danger is in overtrading. Hence, taking the best trades is a method to avoid overtrading while maintaining a high quality of trades.
Day Trading Rules That Will Save You From Ruin
There are many ways to make money from the market.
But the methods to protect yourself from the risk of ruin boil down to a few guidelines.
Here are three critical rules. (For a more comprehensive discussion, refer to this guide.)
#9: Always be in control of yourself. Do not chase the market.
If the market has taken off without you, do not chase it. The market behaves in ways nobody can control.
- You cannot control the market.
- But you can control your response to the market.
#10: When in doubt, lower your trade size
I’ll keep reducing my trading size as long as I’m losing… My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.
- Randy McKay
Lower your trade size when you are in doubt of your trading edge. This tactic is for damage control.
Ideally, cut your trade size to nothingness until you figure out your trading edge.
#11: Accept losing days when day trading
Accepting losses is the most important single investment device to ensure the safety of capital.
- Gerald M. Loeb
Some day traders expect to end each day with profits.
But trading is a game of probabilities, so you’ll have losing days.
Accept them and move on. If you refuse to accept losing days, you will do stupid things like overtrading and ruin your trading account pretty soon.
Tip For Adhering
These last three rules are lifesavers. They control damage to help you avoid the risk of ruin.
First, write them down on paper and keep them in sight. Then, stick it on your computer monitor.
Do these rules ensure that you will become a successful and profitable trader?
No. No list of rules or Holy Grail strategies can do that.
However, adhering to these rules gives you a solid foundation and a chance to succeed in this competitive trading business. And that puts in ahead of most aspiring traders.
The article was first published on 7 December 2013 and updated on 18 August 2022.