In this article, we continue to review the key rules of day trading. If you haven’t read our first article, follow this link to catch up.
Rule #2 Quality over quantity
Imagine, you opened up a chart for some currency pair, which demonstrates high volatility. You sit there and watch the price moving. Which trade to open – BUY or SELL? You click back and forth between the time-frames, looking for the best trading opportunity. So, you opened a trade: one stop order is triggered, another one, and again… You don’t want to hit another stop level, so you move it a little lower – the price is about to turn around. Sounds familiar? This is when your trading gets sporadic and random.
You need to have a system and observe at least basic trading rules – follow the indicators, look for candlesticks combinations or support/resistance levels. There’s this famous saying: ‘Dripping water hollows out stone, not through force but through persistence.” One trade won’t make you rich, but several well-performed, successful trades, carried out without constant changes to your trading strategy and jumping from one trading technique to another can substantially grow your deposit. Once you’ve picked a trading strategy and backtested it on historical data, it’s essential that you stick to it.
Rule #3 Don’t juggle a lot of trading instruments
Day trading requires quick decisions and actions. You don’t have much time, so you need to make up your mind fast. A large number of instruments disperses the trader’s attention. As a result, he can miss important trading signals and lose potential profit. Pick a few trading instruments and focus on them. Watch the charts, the market behavior, monitor the news, and everything that affects the price movement. Don’t get distracted by other instruments.
Rule #4 Risk no more than 1–2% of your deposit
Some can say that 1-2% is a very small amount. Of course, it’s small, and your potential profit won’t be as huge with this about of risk. But for a day trader, it’s more important to maintain a steady growth rate of his account balance, rather than to risk everything and lose his entire deposit in one trade.
When trading within the same day, a trader is faced with a great psychological pressure: when you suffer a series of losing trades at 10–20% risk, your deposit vanishes pretty quickly. You are determined to win back the losses. You get so tempted and overwhelmed with emotions, that it clouds your judgment and leads to more rash decisions and further losses. You must be prepared to lose the percentage that you set as your risk capital. You also need to be certain and confident that if you lose this risk money, you won’t open bigger positions hoping to break even. Keep this in mind, when the market moves against you. The main goal of day trading is not to earn a lot at once (risking to lose everything), but to become consistently profitable with your trades over time.
The topic of money management deserves a separate article, and even one article wouldn’t be enough. You just can’t ignore the importance of risk and money management! Even the best strategy will fail you if you don’t manage your risks properly.
Stay tuned, Part 3 is on the way!
Don’t forget to subscribe to our Instagram, Youtube and Facebook channels!
