Trend is a blog about global daily, weekly, monthly and yearly market trends in such financial markets as Forex, stocks and commodities as well as various day, swing and Forex trading strategies and ways to invest your money. In the blog I am going to share what happens in these markets on a daily basis. I hope you will enjoy my trend analysis. Welcome to my blog.
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Tuesday, October 2, 2012
10 top day trading rules
Day trading is probably one
of the riskiest ways to trade financial markets. As trades are opened each day
the entire trading capital can be lost in a week or even a few days (if one
decides to risk a lot). You will find some good traders among those who are in
the echelon of the most successful, but they are the minority. Most are swing
or trend traders. However, successful day trading
is possible and if you feel it fits your personality best I would concentrate
on that type of trading and would not bother myself with other types
of strategies. One of the keys to success in day trading (like in any
other) is a set of rules that you will have to follow ‘religiously’ and with
very strict discipline. Improvisation is a road to ruin in trading. Only the
best of the best can afford doing that. And they do burn doing that quite
often. So, let us try to set some of those rules in the article.
Entry level, profit target and stop loss
Do it ‘religiously’. Never
start a trade before setting these things in order. Decide where you want to
enter, where to exit and if the trade goes wrong what your loss will be. Setting
these three things before you actually enter a trade is is one of the keys for
you to become a disciplined and finally successful trader. It will help you to
make a plan and follow the plan and avoid spontaneous decisions.
Do not overtrade
trade, but do not overtrade. This is the most usual ‘trader’s disease’ that
all newbies have. They believe that markets offer enormous profits daily. Theoretically
they do. But hardly anybody can materialize all of those ‘theoretical
possibilities’. What you will end up by trying to do this is losing big picture
of the market and eventually most of your capital. If you really want to be a
good trader start from selecting one best possible trade (after serious
analysis) a day.
Enter proactive not reactive trades
Action should follow from
your plan, not from what you see happening. This can come with time too, but
for the time being learn to plan your trades. Reactive trades can be very
costly. Even today I lose some of my profits if I decide to trade reactively. I
remember a few situations when I would have five or six consecutive losses.
Those would often happen after a nice trend or swing and I would lose
around 30-50, sometimes even more of the profits I made during the move. This
happens less often now. I learned something! Praise God!
Do not risk more than two percent of your equity on
any given trade
You can even start from 1
percent. It will take you a lot of time to lose your money. By the time it may
happen you may have learned a lot and save your capital for the best trades. It
would take you ten bad trades to wipe out your account if you choose to risk
ten percent of your capital on a single trade. This can happen in a week. Or
even faster! If you risk just one percent and do not trade often, but choose
your trades you can survive a year (if you are a bad trader). Not all of your
trades will be bad. Not all of them will be good. Just be sure you do your
homework to pick the best ones.
Record your progress and details about your trades
There is no surprise that a
lot of good traders record their progress by writing a journal. They cover
these things: reason behind the trade they took, possible target, maximum risk,
rationale why they lost or won, what could have been done better. They might
mention emotions that they had (fear, greed, joy, exhilaration). This always
reminds them of what they should and shouldn’t do. Try doing the same and see
if your trading results improve or not. I bet they will.
Analyze first, then trade
A lot of traders just do the
opposite. They get into market and then start thinking why they got there.
Reverse the process. Spend 90 percent of your time analyzing and 10 percent of
your time trading. At some point it may become 99 percent of your time
analyzing and only 1 percent of your time trading. Wait for the best situations
when 9 of 10 points indicate a very good trade which you should take.
Imagine A, B, C and all other possible scenarios
before you enter a trade
Markets can go up, down or
sideways. However, you need much more than this in order to be a profitable
trader. You need to make predictions on where it is going to go and how far (up
and about 500 pips till next resistance). This would help you to plan your
trades when your predictions are right and get out of your trades the moment
you see they are not right. You have to make an optimal decision regarding your
entry level, take profit area and stop loss. If you excel in this you will be a
trader sooner rather than later.
Do not follow tips, trust your analysis
It is better be wrong but
follow your judgment rather than follow somebody else’s tips and win. Why? You
need continuity in your trades. You want to be successful. If you want somebody
else to think on your behalf it is better to give money to some fund manager
and let him do the job from A to Z. If you want to be a good day trader you
have to develop your own understanding of market and trust your analysis and
judgment. If you are wrong be fast to change your opinion about the state of
Think in terms how much you can lose, not how much you
I learnt this from Paul
Tudor Jones. He thinks like that. This enables him to limit his losses and
increase his profits. The same works for me. Thinking about possible profits
can inspire you to make unjustified risks. Do not do that. You can always come
back to the trade if you have enough capital. You may not have it if you take
too much risk (let’s say 50 percent of your equity). Money is your tool and if
you lose the tool you will not be able to make money. Save it for best time
always having in mind that if you are wrong you can lose a lot. You do not have
to live in fear, but be protective in your trades.
Do not be afraid of losses, beware of your successes
Nothing teaches best than
mistakes your make (provided they do not destroy your account). And nothing is as
dangerous as successes are. Mistakes make you aware of your weaknesses and
cause you to take protective trades (with manageable risk) while successes tend
to make us arrogant and even lose common sense in trading. Very successful
traders lost millions, even billions of their profits (sometimes everything),
because they lost sense of reality and their weaknesses and started breaking
their trading rules. It is better to have a lower opinion of oneself than too
much confidence. Learn to be defensive before you become offensive. Learn to
protect your capital before you learn how to increase it. Enthusiasm and other
positive or negative emotions are not your friends in trading, but rather
If you want to make extra money and
are ready to trade Forex, futures, indexes and stocks I recommend Etoro.
Profitable day trading is
possible but it requires strict rules that a day trader would follow without
any exceptions till he is able to feel market
rhythm by means of long practice and hard learning. It may take a lot of
time and even when you develop your own judgment for markets you will have to
follow your trading rules strictly. Learn discipline, because a successful
trader will always be a disciplined one. Good luck in trading.
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financial markets carries a high level of risk, and may not be suitable for all
investors. All information on the blog http://trend0.blogspot.com/ is of educational
nature and cannot be considered as advice, recommendation or signals to trade
in any financial markets.