It’s clear that most new traders and investors lack the know-how needed to day trade…
And their inexperience forces them to learn the hard way because it has the power to break their trading accounts.
So today, I’ll cover a few important day trading rules for beginners to follow that many people tend to either forget to use, or avoid for one reason or another.
Day Trading Rules for Beginners
No. 1: Know the Short-Term Fundamental News
Most day trading rules are based on technical analysis and momentum techniques, which of course most beginners know little about…
Many people also ignore fundamental news and reports related and relevant to the stock or market they’re trading.
This is one of the biggest mistakes beginners make because markets are driven by emotions… And short-term fundamental news provides clues as to what’s driving things at any present time.
For example, if a stock is reporting earnings after the closing bell, it won’t trade like a typical day and could see bigger swings up or down.
Another good example is the volatility that occurs when options expire, especially when monthly options expire on the third Friday of each month.
These are just three basic examples of news bits traders need to know about ahead of time because they can have a major impact on prices.
Most professional traders look at economic calendars before the opening bell so they know all potential factors that could influence the market during the following trading session.
The Roger Scott videos I post on WealthPress.com each morning provide daily schedules of market-moving news that will be released in the upcoming hours, days and weeks. So make sure you check those out each morning!
While I’m not suggesting you become a fundamental guru and begin calculating next year’s corn crop production costs, it is great to know what players in the current market environment are thinking at any given time.
No. 2: Stick to Your Plan
Traders often start their day disciplined and ready to execute their strategy according to the rules they’ve set forth…
But sometimes, as soon as they experience a few losses or the market doesn’t do what they anticipate, they forget about their plan and begin trading based on emotions…
This is a recipe for disaster and occurs more often than you can imagine.
I once saw a veteran trader ignore his exit strategy and lose several thousand dollars in a few brief minutes!
Don’t let this happen to you…
Plan ahead, make contingencies for situations that could happen, and don’t forget about these day trading rules for beginners.
Most of the time, traders lose their discipline when faced with unforeseeable circumstances…
Prepare for the worst-case scenario — which is losing all of the money you put into any trade — so if and when it happens, you won’t be caught off guard!
What I sometimes like to do is prepare for five worst-case scenarios before the opening bell… I write down each of these so if any of them happen, I know what I need to do and how I must react.
This will prevent a lot of stress and provide you with confidence in difficult market situations.
Rule No. 3: Avoid Market Entry Late in the Day
Initiating positions late in the session isn’t a great day trading rule for beginners or anyone to follow.
There’s only so much time in the session each day, and only so much ground prices can cover during that time.
Entering the market late in the day often reduces the odds of trades working out in your favor because there’s just not enough time for them to move.
Unless you’re scalping, where you hold positions for a short period of time and take small gains every several minutes, it’s not smart to put on any positions after lunchtime.
Rule No. 4: Never Enter Trades Without Placing a Protective Stop
Not using a stop loss is one of the major causes of big losses.
You’ve probably heard this day trading rule for beginners about a hundred times before, but do you use it each and every time?
The problem occurs after the entry is placed…
You see, the mind has a great way of talking us out of doing things that are good for us. So make sure you figure out your stop-loss level and place your protective stop order as soon as you get your entry fill.
After you practice this day trading rule for beginners and veterans alike, it’ll become second nature — like putting on a seat belt.
Avoiding stop-loss orders is the biggest reason why small losers turn into large, unmanageable positions.
Don’t take huge risks and always protect your positions with stop-loss orders.
Rule No. 5: Always Perform Relative Strength Analysis
Relative strength analysis is done by comparing the instrument you want to trade with another that’s similar.
For example, if you’re trading semiconductor stocks, you’d compare the stock you want to trade with others in the semiconductor sector. Or if you intend to trade E-mini futures contracts, you should compare E-mini Nasdaq to E-mini S&P 500 futures contracts.
Relative strength gives you a great indication of how strong or weak the stock you want to trade is compared to other related companies.
This will give you important clues as to what related stocks or other markets are doing, and can give you vital information about the company you intend to trade.
Now, if you’re going long, you might want to pick the strongest stock in the industry group.
If you want to sell short, you’d want to pick the weakest stock.
Remember, these day trading rules for beginners give you the fundamental tools you need to analyze markets and compare strength or weakness between two related instruments.
I hope this tutorial will help you avoid some costly mistakes, and get you started on the right track!
Just remember… trade at your own risk!
For more on this topic, please go to: The Best Short-Term Trading Strategy for Beginners and The Best Ways to Improve 2 Key Aspects of Your Trading.
And if you haven’t done so already, subscribe to our YouTube channel so you can be notified as soon as we make our next post, and see what trade opportunities we’re paying close attention to!
All the best,
Senior Strategist, WealthPress