Day Trading & Scalping

Day Trading Rules for Rookies – Don’t Play it by Ear

The prospect of making quick money lures many to the world of day trading. The participants in this game, besides professional traders, can be retirees, executives, teachers, small business owners, housewives, etc. who try and make a fortune through their computer screens.  Remember, the profits which may draw you to day trading are virtual and it’s your trading style that can transform them into real gains–a daunting task, especially as a rookie.

There are rules for every game, even day trading! If you are a new player, it’s important that you are mindful of the basic set of rules. These rules are certainly not binding, but they can help you to make some crucial decisions and give broader guidelines.

1. Knowledge
“Knowledge is power.” Knowledge here includes information about the basic trading procedures and tools, information about stocks you plan to trade (like company financials, reports and charts), knowing the latest in the stock markets, keeping track of events that affect stocks, etc. Day trading can become more difficult and risky in the absence of knowledge. As a rookie, do your homework; make a list of stocks which are on your wish list, keep yourself informed about the selected companies and general markets, scan a business newspaper and visit reliable financial websites on a regular basis. An informed decision is a better decision.

2. Being Realistic
Being realistic about profits is important. As you gear up to trade, make sure that you don’t lose out on decent gains in the greed for more! Markets are tricky and it’s better to settle down for a smaller profit than ending up losing heavily. Don’t repent losing out on a chance. If required, you can always buy the same stock when it dips. Every small profitable trade will help boost your confidence and also give you a chance to try out the strategy again.

3. Margin Trading
Trading on margin means that you are borrowing money from a brokerage firm to trade. When used properly, margins help to amplify the trading results; amplification is just not of profits, but of losses as well, if a trade goes against you. As a rookie, keeping control on the amount of indulgence is vital and trading with cash-in-hand helps to achieve that. To begin with, indulge in day trading without using margin. The high margin requirements for day trading on margin also act as a barrier for many to trading on margin.  

4. Entry & Exit
Knowing the price at which you wish to enter at and exit can help you book profits as well as save you from a wrong trade caused by unnecessary confusion. Don’t play it by ear; you must have some pre-fixed levels in your mind for every stock you plan to trade. In case the markets are not favorable, exit to cut losses.

5. Number of Stocks
As a beginner, it is advisable to focus on a maximum of one to two stocks during a day trading session. With just a few stocks, tracking and finding opportunities is easier. If you simultaneously trade with many stocks, you may miss out on chances to exit at the right time.

6. Rush Hours
Many orders placed by investors and traders begin to execute as soon as the markets open in the morning, and thus contribute to price volatility. A seasoned player may be able to recognize patterns and pick appropriately to make profits. But as a novice, it is better to just read the market without making any moves for the first 15-20 minutes. The middle hours are usually less volatile while the movement again begins to pick towards the closing bell. Though the rush hours offer opportunities, as a novice it’s better to avoid that time to trade.

7. Set a Amount Aside
Day trading is risky and there is a high chance of losses. As a rookie, set aside a surplus amount of funds that you can trade with and are prepared to lose (which may not happen) while keeping money for your basic living, expenses, etc. This will ensure that you are not increasing the risk quotient by neglecting your day-to-day needs whilst day trading.

8. Time
Above all else, day trading requires your time. Don’t consider it as an option if you have limited hours to spare. The process requires a trader to track the markets and spot opportunities, which can arise any time during the trading hours.

9. Avoid Penny Stocks
Keep away from penny stocks as a beginner in day trading. These stocks are highly illiquid and chances of hitting a jackpot are often bleak. Don’t trap yourself in a trade which is difficult to exit!
10. Limit Orders
When you place a market order, it is executed at the best price available at the time of execution. Thus there is no “price guarantee” in a market order. A limit order, meanwhile, does guarantee the price, but not the execution. Limit orders help you trade with more precision wherein you set your price (not unrealistic but executable) for buying as well as selling.

11. Unreliable Sources
Don’t trust any SMS, mail, advertisement, etc which claim about super normal profits. It’s not that all such sources are bogus but authentication is required. As a rookie be sure not to be tricked by someone who for a commission lands you with a bad trade.

12. Emotion
There are times when the stock markets test your nerves. As a day trader you need to learn to keep confidence, greed, hope and fear at bay. The decisions should be governed by logic and not emotion. This may be hard for a beginner but only someone who can learn to control his or her emotions can be successful. Before plunging into the real time arena, it can be a good idea to try a simulation exercise.

In Summary
Day trading requires time, skill and discipline. Skill is developed over a period of time as you participate in the markets and trade with discipline by devoting your time. A sound understanding of some good day trading strategies can provide a foundation to this endeavor.  Self learning is the best way to learn and as Jesse Livermore, a legendary trader said, “I know from experience that nobody can give me a tip or a series of tips that will make more money for me than my own judgment.”

Prableen Bajpai can be contacted via Investopedia

Prableen is an Expert Analyst on the panel of IndiaNotes and has authored a section of the Equity Research Module by National Stock Exchange (NSE India). She has taught Investment Analysis and Macroeconomics to business students at the Royal Thimphu College, Bhutan. Prableen holds a Master’s Degree in Economics and is currently working on setting up her Financial Planning & Advisory firm in India

Prableen is an Expert Analyst on the panel of IndiaNotes and has authored a section of the Equity Research Module by National Stock Exchange (NSE Indi...

NVP

Legendary member
36,739 1,871
some good general advice but scratches the surface ........newbies go to the trade2win beginners area to learn much more re starting out

N
 

systematicfx

Junior member
46 2
Here is my 2 cent.
You wish to day trade.. think twice!
How are you going to compete against people like me who has:
Bloomberg & Reuters Terminal in front of me and any tools necessary.
Bloom and reut messenger constantly on chat with other banks, funds. ( sharing information, rumors, flow etc...)

BY the time you find out what s going on in the market you will be on the wrong side of the market and on the other side of my deals
SO Before entering day trading think twice, perhaps it sould be easier to trade on a different time frame where the use of technology/information advantage is not so big.
 

NVP

Legendary member
36,739 1,871
this is indeed the message all wannbee scalper are told ..........don't mess with the big boys ...................fortunately theres still a few scalping crusts out there if you know what you are doing for the poor retail traders

N
 

Sigma-D

Established member
648 61
I think it hugely unlikely systematicfx is one of 'the big boys'. Bloomberg & Reuters are dinosaurs. Money isn't made like that any more. Chat with other banks, funds LOL. For goodness sake.

Algos are making money based on microseconds delays in order transmissions. The skill is in the people who dream up and tweak the algos, not some guy sitting over terminals shouting buy and sell and 'chatting' with other banks and funds. The 80s image of top dog traders (red braces, cigars) easily lent itself to the 90s and noughties image of hedgies and FoF, but anyone up to speed on the current day mechanics of the market will be only too well aware that Hollywood is the only place that image still fits.

Anyonbe can pretend to be anything on the internet. And very few puddings ever get to prove themselves.
 

systematicfx

Junior member
46 2
I think it hugely unlikely systematicfx is one of 'the big boys'. Bloomberg & Reuters are dinosaurs. Money isn't made like that any more. Chat with other banks, funds LOL. For goodness sake.

Algos are making money based on microseconds delays in order transmissions. The skill is in the people who dream up and tweak the algos, not some guy sitting over terminals shouting buy and sell and 'chatting' with other banks and funds. The 80s image of top dog traders (red braces, cigars) easily lent itself to the 90s and noughties image of hedgies and FoF, but anyone up to speed on the current day mechanics of the market will be only too well aware that Hollywood is the only place that image still fits.

Anyonbe can pretend to be anything on the internet. And very few puddings ever get to prove themselves.
You should not judge people without knowing who they are. I feel a lot of frustration in your comments and anger. Try to manage your frustration and look at the positive side... You will get there, don't worry.
 
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Sigma-D

Established member
648 61
You should not judge people without knowing who they are. I feel a lot of frustration in your comments and anger. Try to manage your frustration and look at the positive side... You will get there, don't worry.
That's the thing. We don't know who you are. In this medium you can only judge by the quality of what people say, not what they say. Yes there is a great deal of frustration and anger but predominately at the acres of BS evident on sites such as this. The people who ring true are an unfortunately miniscule minority, but the clarity, simplicity, honesty and integrity of what they say is self evident.

Among many of those who are keen to impress with coloured charts and diagrams and important sounding stuff that actually has no real relevance and an inability to answer the simplest questions, there is a discord and disharmony which is equally self-evident.

You don't know me so you have no idea if I'll get there or not. I know me quite well and my view is, I won't. But you are in no position to decide for me that I will or to presume I am worried. You need to attend to your own problems.
 

Dinos

Veteren member
4,112 713
Here is my 2 cent.
You wish to day trade.. think twice!
How are you going to compete against people like me who has:
Bloomberg & Reuters Terminal in front of me and any tools necessary.
Bloom and reut messenger constantly on chat with other banks, funds. ( sharing information, rumors, flow etc...)

BY the time you find out what s going on in the market you will be on the wrong side of the market and on the other side of my deals
SO Before entering day trading think twice, perhaps it sould be easier to trade on a different time frame where the use of technology/information advantage is not so big.
Completely disagree with you, I day trade and have done for over a decade without the need of Bloomberg or Reuters.

KISS and EASY without unnecessary clutter to "fuddle" the the brain, Price Action tells you all you need to know, all IMHO (y)
 

cashmagnet

Junior member
14 1
What does EASY stand for?

Completely disagree with you, I day trade and have done for over a decade without the need of Bloomberg or Reuters.

KISS and EASY without unnecessary clutter to "fuddle" the the brain, Price Action tells you all you need to know, all IMHO (y)
What do you mean by EASY? I know about keeping it simple. EASY I've never heard of. Thanks.
 

Thunderbays

Newbie
4 1
I been day trading since 1985, wow, just realized 30 years ago, hmmm lol, I think in all that time trading S&P futures, I have used the news twice. I am more of a scalper, but only trade first 90 minutes of day session, risk depends on size on range of one minute bars so if they bigger than 1.75 points, I have risk more than 2 points I normally risk and will go to 3 points if I have to, but then targets will be what I risk, if risk is over 3 points, I either won't take trade or wait for price to retrace so risk won't be greater than 3 points.

I don't ever have thought it was easy, but now I expect to do well in every trade and when I have losses look at it as more frustrating than anything else. I do average down on every trade, so my methods have been well tested and been doing approx. same method over a twenty years.

There are many problems younger traders have, understand what doesn't work, knowing that failed price pattern signals work better than many that do, but often it is they don't know where to start or what to look for as far as knowing difference of chop and trend. Most too concerned on where to get in and never enough time in what to do after one is in, that is where the 99% of work needs to be placed. Many beginners and medium traders don't break down swing lengths, in other words what part of the complete normal trend swing(from lowest pivot low to highest pivot high of one trend), if on average, last forty trading days, normal swing during morning session is 12 points, where are they entering and how much left till reverse is expected. This way if too close to the top, might want to not do trade or have quicker target of one bar, it either takes off or get out with a tick or two.

Really need to put in the 10,000 hours of screen time to get good idea of what works well. But think first of doing long term trading first, much more money in it, as what most burns out starting out day traders is slippage and commissions, so 10 trades and that like giving up a ES point. and you can learn slowly in long term, whereas in day trading have to learn to make second decisions.
 

fugly

Member
60 2
Crappiest advice ever .... lady are you even a suceesful trader?

Crappiest advice ever .... lady are you even a suceesful trader?
 

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