| Day Trading Rules | |
Day trading basics
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Save Money By Learning About Day Trading Rules GET READY ... PREPARE GETTING THE BEST DAY TRADING INFORMATION FOR YOUR MONEY #1 Day Trading Rules Goal is to risk no more than 3% on any single trade. 2% is more conservative and once you have your capital built to a sufficient amount, 1% is recommended. A maximum of 25% drawdown with no more than 2 down months per year and areture of equot of 50% or more a year. #2 Day Trading Rules Goal is to have a well devised trading plan and to obey the trading rules of that plan. The trading plan needs to molel the best trading practices and manintain a winning percentage #3 Day Trading Rules Goal is to backtest your trading strategy before you ever trade. Back test and record the results of all markets in you trading plan and understand the limitations of back testing so you have full confidence in your statistics. Confidence is everything when it comes to trading your plan. Day trading requires a combination of tools and the technical analysis study of the pricing patterns and prices in the stock market in order to effectively compete in stock trading. The combination of tools and analysis is called correlation and it is what helps the traders get a clear focus on their stock. The three major technical analysis tools that are used in trading strategies are volume, the Aroon indicator (a technical indicator, developed by Tushar Chande in 1995, used for identifying trends and the likelihood that the trends will reverse) and Fibonacci numbers, all of which can be used for more profitable trading. Often, investors and traders will use them together as a way of spotting new trends in order to stay ahead of other traders. Volume is the number of shares that are traded during a particular period of time, such as a day, a week or a month. The volume in stock trading serves as an indication of whether prices will be going up or down. High volume normally means there is a new trend trading happening in a stock but it can also indicate that a particular stock will be going up in price. Low volume usually happens when prices either stay within a certain range or if they happen to only move sideways, and sometimes they can occur during a bottom market. Using volume analysis makes it much easier for a trader to identify which stocks to buy. An Aroon indicator helps to find the point of strength in a trend and what the chances are that the trend will continue. The movement below or above zero (neutral zone) is usually an indication of a new trend. If you see a cross below zero, then that would indicate a downward trend. A cross above zero means an upward trend. Stock traders know that any indication close to the zero line without crossovers means that the stock will normally continue the same for a while longer. That brings us to the Fibonacci numbers trade strategy, which is a series of numbers where the following number is the total of the two numbers previously. For example: 1, 1, 2, 3, 5, 8, 13, 21, etc. These numbers are used in stock trading along with support (the set price of the stock when it stopped falling before) and resistance (the price when it stopped rising before). Normally with a trend, the stock will start to retrace its own movement by a set percentage, which is when you use the Fibonacci numbers. The Primary Day Trading Rules There are 3 legs to the chair of day trading: Strategy, Psychology and Risk Management Your day trading rules need to be mindful of all three. Naturally you need to choose a winning strategy which you MUST back test and convince yourself that it is real and works. This self-knowledge will sustain you if you get 3 or 4 losers in a row. Eventually it will happen. If it happens early in your trading career, it can likely cause you to stop trading if you're not convinced of your trading strategy success rate. In most cases, back tracking 75 to 100 trades will be sufficient. Risk management requries you to limit your investment in any one trade to a manageable amount. If you are trading the Forex or Futures market, you should not risk more than 2% of your total trading capital. Psycology is what undermines most investors. By backtesting and using property risk managment one is well-prepared to face the trading tiger.
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