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‘Day trading’, the most popular style of trading may be due to the instant gratification it tends to offer, many traders aspire to be a day trader, a typical mind-set is observed in aspiring day trader is‘place an order in the morning get out with profits in the afternoon and enjoy the money earned in the evening’. But in reality this is not the case, many aspiring day traders get slaughtered in the fast and aggressive price movements and hence they just keep on losing money in the long run.

Day trading requires a distinct personality which includes qualities like discipline, self-control, speed and technology savvy, quick decision making, dedicated screen time etc. Let us discuss 10 important rules a day trader must follow to get an edge over the non-professional day traders.

Rule number 1: Trade only in liquid stocks

Most of the time new traders get caught into in liquid stocks where there is a huge spread between the bid and the ask. Day trading requires precision if the spreads are huge it is very difficult for traders to capitalize on the entire profit and there will be an invisible loss in the form of slippage. The profits earned in day trading are quick and small, this small profit should not be further affected by slippage and hence carrying a liquid basket of stock is a must if day trading.

Rule number 2:Have speed and precision in execution

Unlike swing and positional trading which is done on a higher time frame intraday is done on a shorter time frame sometimes micro time frame. As we reduce the time frame the time required to make decision and execute it gets reduced as well, a positional trader has whole day to decide on to a trade as he may execute his trades on the basis of daily candle but an intraday trader on the other hand may execute his trade on 5, 10 or 15 min candle so the speed at which he must work out his plan and execute it flawlessly should be quick. A day trader must develop this skills so that he does not miss out on quality trades.

Rule number 3: Pre-define capital and risk amount

Day trading can be a dangerous venture for traders who do not understand and implement risk and money management, a single moment is enough to wipe out the profits earned over few months if traders breach this rule. A wise trader would never allocate all his capital to day trading instead he will have a percentage allocation for all forms of trading as per his skill set, time availability, cash requirements and risk appetite. Also he will have a pre-defined amount of risk either per trade or per day after which he would no longer trade and will stop for the day, this creates a control over the amount decided as the max loss that is ok for him to lose. This business requires capital to sustain and earn hence this rule is very important to be followed.

Rule number 4: Stoploss should be in the system and not in mind

Stoploss is one of the risk management tools which helps trader to get out of the trade when sometimes the anticipation goes wrong, also it helpsto decide on the position size of the trade. The most common mistake that novice trader does is not using this tool at its best, he plans his trade enters into it but does not keep the stoploss order within the system, instead he keeps it in his mind saying, ‘will get out once I see my stoploss exit price’, as discussed earlier movements in intraday are fast and aggressive one news can make price fluctuate so wild that trader may get paralyzed to react and exit the trade. Hence it is very essential to keep stoploss order in the system to avoid unnecessary consequences.

Rule number 5: Intraday should never become investments

A common mistake noticed in a novice trader is they get attached to some of the stocks may be due to branding or the product confidence they have in that company, these trader start their day as an intraday trader and are firm initially about exiting the trade on the same day but as they see losses they tend to find and connect piece of information that are positive for the stock in the long run and they just stay invested even if the price of the stock is going day by day, this is how people become investors and after some year they are fed up and exit once they achieve breakeven. An intraday trader should always cut his position on the same day irrespective of the loss because this will bring in the quality of being disciplined which is an essential trait while trading.

Rule number 6: Accepting losing days

Trading is a game of probability there will be a mix of losing and winning days, it is impossible for trader to win daily over a long run, the only thing that he can control is his exposure when he losses and when he wins. Accepting losing days is a biggest challenge trader faces but he needs to implants this in his personality that it is just a normal day, his job should be following a profitable strategy which has a probabilistic edge in the long run and gauge the performance over time to optimize the efficiency. The bottom line is no system is 100% efficient, so early a trader accepts this fact better will be his executional efficiency.

Rule number 7: Controlled screen time dedication

Most traders have a perception that intraday trading means first order should be at 9.15 am and last order around 3.15 to 3.30 pm, they are just glued to the screen and observe each and every candle that is forming. A professional day trader has a plan in place will enter the trade when his entry comes and exits as per rules and he is done for the day. Dedicating time on screen does not mean that a trader is working hard or efficient.

Rule number 8: Never try too many strategies in a single time period

A novice day trader will always expect results in quick time so he keeps on jumping from strategies to strategies which has no end as there are thousands of free strategy available on the internet. Trying too much strategies at the same time will pressurize the mind and affect the psychology, hence a trader must stick to a strategy, give the time required for testing and keep his calm.

Rule number 9: Be professional in approach

Although this seems out of the syllabus rule but it is very important to cut down the noise and build on discipline. The main difference between human brain and a computer is computers do not have emotions while human carry emotions in all their task, hence it is necessary to have a professional approach while day trading which includes time dedication, not doing multiple task like watching news while trading, not getting involved into social media gossips etc. as humans are emotional creatures and these stuffs can bring a shift in emotions thereby affecting the trades.

Rule number 10: Stay fit mentally

As it can be observed most of the rules revolve around trading psychology rather than indicators or trade setups it is very important to stay fit mentally. Some of the points here could be: Take a break and go out for a holiday, Utilize the money earned regularly, Engage into other activities of life, Find out ways to stay fit mentally.

Day trading is a lucrative business if done with a systematic plan, the above rules will make sure that a trader is not slaughtered by the daily movements. Above all having a mentor will definitely help in all the aspects i.e. Technicals, risk management and psychology.


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