3. Day Trading Rules For Beginners

Have a Strategy

Only the world’s best traders can get by on their pattern recognition skills alone. You can’t simply find a chart that ‘looks good,’ and start trading it. Too many cognitive biases are at play in trading.

Without a strategy and a plan on how to execute that strategy for each trade, it becomes very easy to mentally move the goalposts.

In other words, on a trade that you should only be risking $0.25, without a plan, it becomes easy to let that become $0.35 with the intention of “letting the market breath,” or an equally ridiculous rationalization made to keep you in the trade.

A strategy should set parameters that make it clear when you should buy or sell a stock, and when you should stay flat. A simple example of this would be “buy when the 20-day moving average crosses above the 50-day moving average, and sell when the opposite happens.”

The risk parameters might be to not risk more than 2 daily ATRs (average true ranges).

These quantitative criteria make it very simple for you to determine when to open and close trades, and if you’re adhering to your system correctly. Further, if this system has good backtest and live trading results, you have the confidence that you’re trading a sound strategy when you go through a sustained drawdown period.

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