10 Day Trading Rules All Newbies Should Know

by Jenna Lofton

June 11, 2021

In This Post, We Go Into the Top 10 Day Trading Rules ALL Traders should follow, both veteran and newbie!

10 Day Trading  Rules to Live By

Though trading is by no means an illegal or unethical practice, that doesn't mean there isn't a code that you should live by if you are to engage in day trading. If you are reading this, then it must be a given that you are somewhat aware of the dangers of day trading and how risky it is for a novice. That being said, you are determined to try your luck and see if you have the skills it takes to make it big, then by all means trade away!

Top 10 Day Trading Rules to Live By

Before you do though, you might wanna read and internalize these rules to day trading first. They will serve as a worthy code to live by -- helping you avoid making many of the same mistakes that countless investors made when engaging in the cutthroat world that is day trading.

1.) Acquire as Much Information as Possible

Gain Knowledge

Gut feelings and instinct is certainly not enough to engage in day trading properly. There is a reason why most day traders are constantly glued to their multiple monitors and rarely speak more than a few phrases to other human beings. This is because when they are not busy actually trading, they are fully absorbed in the hunt for new information and useful intel that will guide their decisions in the future.

They make use of state-of-the-art tools and review only the most recent charts and reports too -- all in a bid to make the most accurate position about future prices and act accordingly. When you start day trading, you will undoubtedly need to do the same or risk be flailing about on the many ups and downs of the market.

2.) Keep Yourself Grounded

It's almost a cliche how the stories of traders who got too greedy and lost it all have become.

Just look at WallStreetBets on Reddit for countless stories and people bragging about how much they LOST in "YOLO Trades"!

It's all too common now, unfortunately.  As you begin to trade in the market, be content with decent gains and avoid trying to walk away with as much as possible.  Before you know it, you are so entrenched in the earnings of a single stock that you hardly realize how much you're gonna lose or are already losing.

TLDR: You're probably not going to get rich overnight, so don't chance it.

Be reasonable with your earnings and stay away from projections stating nothing but upwards trends other traders or analysts. Better to mourn over what could have been than what was then lost.

Part of setting expectations and being reasonable is understanding that day trading is a full-time gig.

It only works if you are willing to put every ounce of your intelligence, energy, and dedication into figuring out the right routes to take to make a profit.

If you are one of those people that are juggling multiple commitments at the same time or have limited hours in the day to spare, then day trading is certainly not gonna be for you. There's nothing wrong with that, it's not for everybody and it's okay if you're not able to make that commitment! 

3.) Margin Trade with Caution

In case you don't know, margin trading is the buying and selling of stocks or securities on money borrowed from a brokerage.

  • When used properly, margin trading can increase earning potential and increase an investor's buying power greatly. 
  • When used irresponsibly, margin trading can result in large than expected losses and can even lead you to owe the brokerage money too.

It is not recommended that you open a margin account as a novice trader.

Learning the ropes first is essential before you graduate with such advanced financial instruments. If and when you have a margin account, restraint is key. 

Avoid overindulgence in your own buying power and play the cautious card first. Test the waters and only go for stocks or securities you're positive will yield good results.

Anything less can result at the end of your career as a day trader.

4.) Focus on a Few Stocks First

As one who is just starting, be wary of spreading yourself out too thin. Keep yourself focused on one or two stocks first and work your way out from there. If you start investing in too many stocks, you will burden yourself with the responsibility of keeping track of all of them all at once. This can lead you to make lapses in judgment that can prove quite costly.

Select the ones that are predictable and more easily tracked -- this allows you to hone in on your analytical and speculating skills. Only add to your portfolio what you are certain you can manage.

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5.) Always Have an Entry and Exit Strategy

Related to the rule of not getting greedy and of only investing in as many stocks you can handle, this rule provides that you must always have an entry and exit strategy when buying a stock. This allows you to clearly set your expectations and know at what point to call it quits. It also allows you to gauge how likely your predictions will come to try when you're in it.

Formulating a strategy with the information you have on hand is a staple of day trading that one has to get used to. Making decisions based on whims is always a bad idea. The market is far too unpredictable to accurately call based on nothing but feelings.

6.) Always Set Money Aside

It's common and good practice that you set some earnings aside for a rainy day.

Doing so, believe it or not, is a form of investment in and of itself.

You see, by having a percentage of your earnings take out and put aside, you make sure that you never walk out of your time as a day trader empty-handed.

You would have to take a step to ensure the safety of your long-term position financially. Otherwise, when a market crash hits or investment goes worse than expected, you'll find yourself left with maybe less than when you started.

7.) Avoid Rush Hours in the Beginning

Right when the market opens, traders flood the market with their purchases and sales and order -- all of which go into creating price volatility.

A trader who knows his stuff knows when to hold bank and when to ride the tide.

As a beginner though, it would be wise to hold back for the first 30 minutes before engaging. This allows you some time to observe the patterns in the market and recognize them being carried out.

In time, you will be more than capable of recognizing these patterns from the onset and make decisive decisions accordingly. Hold back, in the beginning, to know how to fight full force in the future.

8.) Avoid Penny Stocks (For Now)

A penny stock is a stock of small companies that are usually traded below $5 per share. In the past, they used to be traded at under a dollar per share -- hence their name. Though there might be an appeal in riding on the potential of an underdog or a rising star, the truth is penny stocks are highly liquid and difficult to unload due to the limited amount of people willing to buy them.

They're great, and I love them - but if you're a newbie to day trading, avoid penny stocks for the time being, and stick to small caps stocks (stocks over $5.00, traded on a traditional, stock exchange).

For some of my penny stock resources (not for day trading), check out:

9.) Avoid Unreliable Sources

Often an all too present danger with regards to day trading is being influenced by unreliable or outright wrong information. It can be hard to avoid when you are being bombarded left and right by streams of information looking to influence your decisions.

You must also keep in mind that money is involved here, your money, and people in the market will try their best to get you to put it here or there.

You will need to build certain confidence in the sources you rely on for information and develop a means of screening the information to make sure its legitimate.

Personally, I'm a huge fan of the Near Future Report Stock Newsletter, by Jeff Brown. His trades are legit, and he's got a great track record of success with Wall Street.  

10.) Keep Emotions Controlled

controlled-emotions-meme

Keeping your cool during day trading is definitely a battle when nothing can cause your heart to pump the way the stock market can.

You have to be able to control emotions like greed, cockiness, pride, shyness, or even fear.

You also need to be skeptical about everything, especially yourself and your own instincts. Intuition can only take you so far after all.

Related: See our post: Swing Trading VS Day Trading

Bottom Line

Day trading is by no means an easy thing to do. It takes a lot and a lot is at stake when you're dealing with the stock market on a daily basis. You need to be prepared for all kinds of outcomes that may come your way -- accepting the failures along with the successes.

But if you're able to keep most of the things on this list in mind, and trust in your ability and the skills you have taken time to develop, then you are certainly on your way to becoming one of the most successful traders out there!

About the author 

Jenna Lofton

Jenna Lofton was Born in Maine and lives in Staton Island, NY. She holds an MBA in Finance from the University of Maryland and has been actively trading stocks for nearly 11 years.

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