Friday, September 21, 2012

A few day trading rules...

This week has been filled with some sharp swings in my day trading account. Was making some decent progress in my day trading account in the first half of this week, that is, up to Wednesday's close. Then on Thursday I managed to lose $400 by midday most because of a number of poor trades then made it all back plus $100 in the evening session with a few solid trades.

Then Friday morning, I did basically the same thing. However, this time most of the losses were due to losing trades from a single stock: $SSYS. I ended up losing almost $300 in that single stock when the most I should have lost in it should have $100. So after two and a half weeks of day trading; I'm about $75 away from break even. Every day has been one step forward then one step back eg. +$200/+$250 then the next -$200/-$250 then today -$400!!!. Basically 50% of my trades are good trades (some winners; some losers) while the others (in hindsight) appear totally random or extremely poor (like chasing a stock far above the ideal entry).

So I wrote down five basic rules that should help me improve my day trading:

  1. I must have strong conviction in the idea on the daily chart. Whether it is a flag, pull back, breakout or parabolic long/short and whether I found it on my own, off twitter or someone else's blog. Essentially I must really like the set up on the daily chart a lot!
  2. The stock must trigger from a clear intra-day set up. Do not try to anticipate the trigger; wait for confirmation! Also the set up must have a well defined stop loss and risk/reward better than 2:1.
  3. If I'm not getting in at the ideal buy point or within a penny or two of it; then pass on the trade or wait for it to dip back. Do not chase!!!
  4. Always take partial profits when my profit on the trade is 2 - 3 times what I risked on the trade. Take at least a 1/3 off for stocks I plan to swing and 1/2 off otherwise.
  5. Be patient with partial positions on winning trades and give them room to develop into big winners! 
Looking for to improving on my results from the past 2 weeks and making some decent profits!

Good luck and good trading!

1 comment:

  1. One thing that I have always found helpful is avoiding the urge to look at how much profit I currently have in a trade. When I start watching the dollars I've made on the trade instead of the actual price action, I tend to make a bad decision on the management of the trade. I know a lot of traders struggle with this, but thought I'd offer it as food for thought. All the best to you in your trading endeavors.