Five Important Day Trading Rules For Novice Day Traders

By Author: Francisco Mandelbaum
Total Articles: 28
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It is important that you make some day trading rules and stick to them. First of all, you need to have and enter, exit and escape strategy. Always wait 15 minutes after the market opens to trade. Rookie traders must also avoid market orders and preferably use limit order.

When it comes to day trading, having a set of rules through which any possible scenario can be managed is essential. Moreover, having the discipline to follow those rules is equally important. Some traders are known for throwing out their own rules in the heat of battle and they end up playing it by ear with drastic result. Although there are many day trading rules, the following ones are probably the most important.

1. Entering, Exiting and Escaping

In case of a worst-case scenario, having an entering, exit and an escape price is necessary for day traders. Traders do not always work according a trader's expectations, so knowing when to get in and when to get out is important. Losses can be minimized by using a stop price, which can allow you to escape a trade. Profits can be locked in by knowing when to get in our out, while potential ...
... disasters can be avoided too.

2. Always Wait 15 Minutes after the Market Opens to Trade

Market orders available in the first 15 minutes are most likely placed the night before and traders usually trade in panic during that time. Therefore, this time period should be avoided by novice traders; instead, they should look for reversals. If you want to make quick profits, waiting a while until rewarding opportunities are spotted is better. The first 15 minutes after the market opens are also avoided by many pros.

3. Avoid Market Orders and Use Limit Order

Through a market order, your broker will simply buy or sell at the best price that is available; however, that is not always the most profitable price. When market orders are triggered, it is quite possible that sell orders may get filled at points that are much lower than anticipated. With a limit order, the maximum price that has to be paid or the minimum price that has to be sold can be controlled.

4. Using Margin should be avoided by Rookie Traders

When margin is used, money is borrowed from a brokerage so that all or part of a trade can be financed. Usually, 4:1 intraday margin is allowed for full-time day traders. For instance, with a $30,000 trading account, day traders get buying power to buy securities that are worth $120,000. However, overnight, there is a 2:1 margin requirement. When used properly, it is possible to increase, or leverage potential returns. However, margin can also increase losses if a trade does not go in your favor. It was because of margin that day trading was not favored by many traders a decade ago, when trades were being finances by borrowing bundles of money and cashing in 401k(s). Instead of using margin, learn how to day trade stocks if you are a novice.

5. Have a Plan to Sell

A majority of rookies barely consider when to sell, they just keep thinking about stocks that they want to purchase. However, knowing when to exit in advance, especially with a profit, is necessary before entering the market. As mentioned in the beginning, both hope and "playing it by ear" are definitely not selling strategies. A price target and a time target should be set by day traders.

Learning to day trade is not so difficult; however, to make consistent profits, having discipline is necessary. Many traders often get tripped up by their emotions, so following day trading rules such as the ones above is necessary so you may stay on the right side of trades .

Author of this article enjoys listening to the CFRN Emini Futures Live Market Commentary each day and also watching the CFRN Professional Emini Traders place live trades in their Live Emini Trading Room.