Learning to Day Trade - Part 6

Trading Rules

These are some basic rules I’m working on and will continue to add upon and refine. I know every trader has a set of rules and I haven’t really laid mine out yet. I’m figuring this out as I go along. Feel free to copy some of them or add your own.

  1. Cut losses quickly.
    • This is the rule that Tim Sykes preaches in every video and it’s a good one.
  2. Avoid trading premarket/after hours.
    • I’ve really only see one good opportunity for buying premarket and even then it seemed so risky. I just avoid it entirely due to less liquidity.
  3. Try to avoid trading the first 5-10 minutes.
    • During this period it’s often unpredictable to me. I have chased stocks near the open only to have them roll over immediately. Sometimes it works but it’s usually a chase and that’s when you lose.
    • Most opportunities that I see now occur after this time anyway.
    • However, some of the best shorts lately have been right at the open within the first 3 minutes. (like $AMD and $HIMX)
  4. Know your risk.
    • This is something I struggle with and am trying to improve upon. You have to know at what support/resistance level will you get out at if it cracks or breaks out.
    • I have trouble determining potential risk/reward and it’s something I need to get better and faster at doing.
    • This goes hand in hand with cut losses quickly.
  5. Avoid buying into tops of over extended stocks.
    • Stocks can always keep going - I’ve seen all day runners happen multiple times, but you could end up buying into the top when it tries to break out again.
    • If a stock has no news and you’re buying close to high of day, there’s barely any profit potential.
    • It becomes a potential short depending on the chart pattern.
    • However, on real company’s that have news and they appear overly strong, it might be a good idea to get in when there’s a small pullback. (like $KURA and $NLNK recently)
  6. Get out if it’s not doing what you want.
    • If the stock starts doing something you don’t like or you don’t feel comfortable, there’s no reason to keep holding. You can always re-buy or re-short later at a better entry price.
  7. Be open minded and willing to change your bias from long to short or vice-versa.
    • Many times I have gone in thinking I really want to short a stock but then after it moves I realize I should have been buying instead.
    • This can be frustrating because it causes me to miss out on certain trades. You have to learn to adapt to the chart.
  8. Adapt.
    • The market is always changing. You have to be willing to change with it.
    • Another Tim rule from his video lessons.
  9. Study the past.
    • Another Tim rule.
    • The patterns repeat.
    • Whether it’s one stock (what did it do previously?) or learning from different plays via video lessons.
  10. Wait for the best opportunities to present themselves.


Part 7 - Self-sufficiency



Disclaimer

I am not a registered financial adviser/broker/anything. Use this information for entertainment/informational purposes only. Any tickers mentioned are not recommendations to buy/sell/or sell short. They are used as examples only.