My Top Day Trading Rules!
- Rule #1 - Don't add to a losing position
- What I mean by this is do not average down or up. It may work sometimes but it will not work all the time! The one time it doesn't work, you will probably blow up your account! Let's take an example. A lot of people that that Blackberry was a solid company and they found their stock to be cheap. Just because a stock is cheap, it does not mean the stock cannot get cheaper! Just look at this chart.
- As you can see on the chart, Blackberry was at around $150 in 2008! Crazy! After a couple years people thought this stock was really cheap and had to go back up! So they bought it low, and the stock went lower, then they averaged down, and it went lower. Now you can see that the stock is kinda consolidating around the $10 price level. People who averaged down throughout all those years probably got screwed! So lesson is, NEVER ADD TO A LOSING POSITION!
- Rule #2 - Cut Losses Fast!
- This is another very very important rule! Whenever you start trading, you should always and I say ALWAYS have a plan! Never go into a trade without a plan. You will get screwed... You always want to have good plan to get in and out of a trade. Like a set stop on a trade if it goes the wrong direction you went in thinking it would. The first two weeks of trading, I went in with HUGE size for my account... I only have 2.5k but with 6 times buying power, you can get a little naughty. So I was buying $10,000 worth of one stock in hope of it going couple pennies for a quick scalp. Well I didn't have an exit plan. So the first two weeks of trading, I lost 1.5k... So I just want to tell you this before you go and make a mistake. I know everyone has done this, so do not feel bad. Just HAVE A PLAN!
- Rule #3 - Respect the Trend!
- When I say respect the trend I mean do not go long if the stock is red on the day! Or short a stock if the stock is green on the day. This is putting the odds of you winning on the opposite side! Unless you are anticipating a stock to go green on the day or red on the day. But that is when you always have a plan! Risk/Reward. Always want more Reward than Risk. So let's say you are going for a $1.00 move, you should risk .50 cents or less on that trade! I prefer a 1:3(Risk/Reward). So risking maybe .50 cents for a $1.50 move! I hope that makes sense. But basically, you are putting the odds on the other side when you do not respect the trend!
- Rule #4 - Never Trade out of Boredom!
- This one is bad for all of us! Even the most experienced traders do this! This is the worse thing you can do. Trading out of boredom never goes right! You will always pick a lousy stock just because you are bored and want to catch some action! This will cause you to add a lot of size for a quick scalp trade! Like I said before, this never works! Don't do it.
- Rule #5 - Scale out of winning positions.
- This basically means, always lock in your profits along the way! Let's just say you buy 1,000 shares of Facebook in the morning for a R/G move. The trade goes your way and you are up $700 dollars, what you can do is lock in some profits by selling half of your position. This will help you stay in the game because you do not have to focus much on the stock and just let it ride for more profits! And even if it goes south, you can exit the rest of the position and still had made profits because you locked in some of your gains! Really simple rule to follow!
Alright guys, these are my main rules. I know I am missing a bunch that I cannot think of right now! So please comment below this post and put some more rules that I can add to my list and help me and others with the new rules! Hope you guys liked this one! Enjoy your weekend!
