The Three Most Important Day Trading Rules

One of the keys to being truly a successful day trader is to have a summary of rules that you consistently follow. Unlike a regular job where you’ll have a boss looking over your shoulder, as each day trader you’ll be your own boss and thus be responsible for your own results. By recording and following your entire day trading rules, you’ll develop a system that reinforces your trading discipline and prevents you from making costly errors. In this article, I’ll share my three most significant day trading rules. Rule #1: Manage Risk On Every Trade

This rule is really the building blocks of my trading philosophy. This means that on every trade I make, my first consideration isn’t how much potential profit I possibly could make, but how much cash I could potentially lose. Too many traders focus too much on the potential profit and forget the importance of risk management. Before I make any trade, I know what my downside is and the price at which I’ll exit the trade if it goes against me (my stop-loss). This means that no single losing trade will undoubtedly be catastrophic. As a trader, my goal is to hit consistent singles and doubles and not necessarily home runs.

Rule #2: Limit Midday Trading

Another key to becoming a consistently profitable day trader would be to understand the importance of the time of day. With regards to trading opportunities, not all times are manufactured equal. Generally, there is a lot more volatility and volume in the currency markets at the open and close of trading and a pronounced lull in trading activity through the middle of the day. Because day traders need volatility to create money and also must overcome their transaction costs, trading in the center of the day is frequently a bad idea. To enforce this rule, I keep my eye on the clock and drastically reduce my position sizes and risk in the center of the day (generally from 10:00 am -2:00 pm CST).

Rule #3: Review Every Trade I Make

I view every trade I make as a learning experience, both to learn more concerning the strategies and techniques I’m using in addition to to gain information about the existing market. Among the beauties of trading is that you get instant feedback on your decisions. During this review process, I focus my attention not on the outcomes of the trade but on the decisions I made. Was my position sizing ideal? Should I have moved my stop-loss? Did I follow my risk management plan? As any experienced trader will let you know, there are plenty of times where poor trades end up being profitable while excellent trades don’t workout. In order to improve as a trader, it’s important that you learn from every single trade you place.


By following these daytrading rules, I know that I can be consistently profitable and make excellent risk/reward trades. While risk management may sound like an abstract principle, I implement it by knowing my stop-loss ahead of placing any trade. I’m also aware of probably the most opportune times to trade and limit my trading when conditions aren’t ideal. Finally, I gain insight from every trade I make with a thorough review process. Take time to write down your trading rules to bring clarity to your trading and ensure you stay disciplined.

Leave a reply

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>