Forex day trading can be a lucrative and exciting way to invest in the financial markets, but it’s also a high-risk activity.
To increase your chances of success, it’s important to follow a set of clear and well-defined day trading rules.
In this article, we’ll cover the dos and don’ts of day trading in the foreign exchange market, including risk management, discipline, and proper research.
Whether you’re a beginner or an experienced trader, these day trading rules will help guide your decision-making and keep you on track for long-term success.
Keep reading to learn the essential day trading rules you need to know.
Day trading is a risky endeavor, so it’s important to also understand that day trading carries the risk of substantial financial losses!
Day traders should only put themselves in positions where they’re comfortable with losing their entire investment capital because this is always possible…
Day traders need to be very cautious of their risk tolerance level and never exceed it!
Day trading is not for everyone, but there are some great day traders out there.
List Of Top Day Trading Rules
17. Be Obsessive To Succeed
Watching a computer screen all day can be tedious. With day trading, you can’t just flick over to social media spend hours on end liking photos of dogs, and hope you haven’t lost all your money yet.
You need to really want to trade to succeed because it can be very draining on the mind, soul, and bank balance if you are not inept in the arts.
16. Focus On A Couple Of Assets At A Time
Opportunities for day trading arise each day without fail.
However:
It is best that you specialise in a series of assets.
For example, you can choose to trade every currency pair – but in reality, you will be just chasing shadows and it’ll cost you a lot in fees.
Instead, simply find a “basket” of forex pairs to trade and stick with them.
Be obsessed and you will understand their market movements like the palm of your hand.
This way, you are not just focusing on a pattern that has formed or the technical indicators alerting you to buy immediately on a random asset.
As you will learn in your trading career, certain assets have their own characteristics.
15. Chasing Losses Wipes Accounts
Ever still been in a trade thinking:
“it’s bound to turn around”
If so, like most traders when we start out, then you need to understand how to easily kill terrible trades.
If you think you have to double down on your lot size to quickly regroup your losses, then you’ll find yourself in double the trouble.
A key part of trading is accepting losses.
So one good rule is to simply never move the stop loss. EVER.
14. Never Trade Naked
Never leave yourself exposed to unlimited loss potential for just a few pips.
If you are day trading, you seriously have to set your stop loss.
No stop loss, no more trading account if the market moves against you.
13. Do Not Think This Is Income
This mindset kills dreams.
Yes, you may withdraw money to live on from your profits.
However:
This action reduces your trading account, therefore, how much you can trade and thus reducing your growth potential periodically.
Not only that, but you have to re-earn that money you took out to get back to the trade sizes previously.
We are not saying don’t take money out, we are saying change your mentality around trading from income generation to capital growth.
12. Trade With Your Brain, Not Your Ego
Follow the strategy you worked so hard to craft and perfect.
If you have a “feeling” something might happen but no supporting evidence; or
Try to flip your buy trade mistake into a sell trade,
Then you’ll be handing money over fist to other traders.
11. Become Aware Of Your Trading Day
Fundamental analysis might be boring, but it’s pretty important to know upcoming events.
Don’t lose sight of a trading opportunity to only go and enter during a high-impact news event.
This can lead to large losses (liquidity issues on filling your stop loss i.e) NFP) but can also lead to quick profits too.
However:
If you are unaware that an announcement happened, you could be kicking yourself and dissuade yourself from your trading strategy.
You could start to believe it doesn’t work, then it becomes a self-fulfilling prophecy.
So be a good trader, and always keep tabs on major news events.
10. Boring is Profitable
If you’re a day trader at home, you’re never going to be on the phone shouting at others to buy and sell at the market.
In fact, the loudest sound in your room could be a mouse click.
So you should follow your trading strategy to the letter and mechanically.
This helps subdue your urges to have a “quick flutter” on the EURUSD because it is moving 30 pips in the last 3 minutes.
This can spiral and lead to addiction in having to trade out of boredom or loss chasing.
The thrill of trading is exhilarating, especially when you profit handsomely from it.
But if you ever get the urge, just check it to see if it matches your trading rules first.
9. Never Force a Trade
Similar to Rule 10, but this is without the urge.
This case is if you see an opportunity arising without validation; or
If an opportunity looks like it has presented it to yourself but it isn’t what your strategy requires to confirm the trade.
People that force trades tend to do so out of boredom or desperate in the need to make up a recent loss or extra cash, then hope for a payoff.
8. Never Catch A Falling Knife
This one also backs up Rule 9.
What does it mean?
You know when the market is dropping fast, and you think you should jump in and take a quick profit?
It means exactly to avoid the above completely.
If a market is in freefall, let it land and then review any opportunities.
Trying to predict when the sharp drop is going to stop is 10x harder than trying to predict when a trend will reverse.
Just acknowledge the move and manage it afterward.
7. Leave Your Emotions In Check, It’s Just Money
If you fear losing money, you are not ready to become a trader.
If you are ready to take profit after every 1 pip movement, but unwilling to take a loss after every 10 pips – you are not ready.
You have to simplify the monetary value of trading and focus on just the pips.
This way, you can work on something that isn’t directly related to a monetary value and would help you ease off the destructive emotions if you hit a loss every now and then.
Seriously though:
If you can’t afford to lose a penny, don’t even consider trading with real money yet.
Build your confidence up on a demo first, earn some more money where you can afford to lose something you are comfortable with.
Then go for it.
6. Knowing When To Cut Losses Can Save You Money
Your risk management has to be on-point.
That includes knowing exactly how much you are willing to risk.
If you gamble and say move your stop loss from 10 pips to 20 pips — a “just in case” move, you’ve increased the amount risked by 100%.
This isn’t a smart move.
5. Perfection Doesn’t Exist In Trading
Obtaining a 100% win rate is impossible.
The best in the business for investment banks have an average of around 55-60% over many years of trading.
The difference is, they let their winners run long until the market takes them out.
Don’t focus on making a perfect trade each time, instead focus on making sure the trade meets your trading strategy parameters.
Sometimes, the trade idea is correct – just the timing of the trade is wrong.
4. The Market Is Always Right
Don’t try to convince yourself that the market is conspiring against you.
Trillions of dollars per day are exchanged on the markets globally.
When a trade doesn’t play out, don’t worry too much about it if you have followed your trading plan.
The best thing about trading the markets is there could be a better opportunity around the corner.
3. Never Take Anyone’s Advice
If you are a member of an email list that provides tips on trading opportunities, or a chat room where other traders across the world talk about their trades – try not to focus or listen to their advice.
If you follow others, you may enter trades and wait until they say you should get out of the trade.
They may never return and you could end up at a big loss…
But you’re smarter than that.
Stick to your own game, your own money, and your own plan.
Then you’ll be in complete control.
2. Lock In Your Profits
Earlier I mentioned that you should never move your stop loss.
Well, specifically:
Never move your stop loss to increase your exposure to the market.
You can, however, move the stop loss to follow the market in a profitable direction.
This is called a trailing stop loss and it’s highly recommended.
You can not only lock in a profit, but you can increase your profit potential by following the market in your favour until the market takes you out.
Imagine exiting a trade for 30 pips profit, which is great.
Now imagine locking in 30 pips profit, trailing a stop loss for another 2 days, and securing 120 pips profit.
Same effort, 4x the return.
1. Limit Orders Gives You The Power
Market orders are great if you want to jump in on a trade through technical indicators.
However:
- Limit orders give you so much more control,
- You dictate what price you want to pay,
- It only executes IF the market hit’s your limit order,
- It can stop you from jumping in a trade too early.
I like to think of them as setting little traps in the markets to snare the price I believe would be the optimal entry.
Worst case scenario is the market reverses away from my limit order and I haven’t risked a single penny.
You should give it a try.
Now that you’ve read through the list of day trading rules, it’s time for action!
After reading these rules, I hope you have a better grasp on avoiding some tough situations and enhance your trading knowledge at the same time.
Keep these tips in mind as you trade and don’t forget to share this article with your friends on social media so they can learn from our lessons too!