The Three Most Important Day Trading Rules

One of the keys to being truly a successful day trader is to have a list of rules that you consistently follow. Unlike a normal job where you’ll have a boss overlooking your shoulder, as a day trader you’ll be your personal boss and thus lead to your own results. By writing down and following your day trading rules, you’ll create a system that reinforces your trading discipline and prevents you from making costly errors. In this posting, I’ll share my three most important day trading rules.

Rule #1: Manage Risk On Every Trade

This rule is really the building blocks of my trading philosophy. This means that on every trade I make, my first consideration isn’t how much potential profit I could make, but how much cash I could potentially lose. Way too many traders focus too much on the potential profit and overlook the importance of risk management. Before I make any trade, I know what my downside is and the price at which I will exit the trade if it goes against me (my stop-loss). This ensures that no single losing trade will undoubtedly be catastrophic. As a trader, my goal is to hit consistent singles and doubles and not necessarily home runs.

Rule #2: Limit Midday Trading

Another key to learning to be a consistently profitable day trader is to understand the importance of the time of day. When it comes to trading opportunities, not absolutely all times are manufactured equal. Generally, there is much more volatility and volume in the currency markets at the open and close of trading and a pronounced lull in trading activity through the middle of the day. Because day traders need volatility to make money and also must overcome their transaction costs, trading in the center of the day is frequently a negative idea. To enforce this rule, I keep my eye on the clock and drastically reduce my position sizes and risk in the middle of the day (generally from 10:00 am -2:00 pm CST).

Rule #3: Review Every Trade I Make

I view every trade I make as a learning experience, both to learn more about the strategies and techniques I’m using as well as to gain information about the current market. One of the beauties of trading is that you get instant feedback on your own decisions. In this review process, I focus my attention not on the outcomes of the trade but on the decisions I made. Was my position sizing ideal? Should I have moved my stop-loss? Did I follow my risk management plan? As any experienced trader will tell you, there are lots of times where poor trades end up being profitable while excellent trades don’t work out. So that you can improve as a trader, it’s important that you learn from every single trade you place.


By following these daytrading rules, I know that I could be consistently profitable and make excellent risk/reward trades. While risk management may appear to be an abstract principle, I implement it by knowing my stop-loss ahead of placing any trade. I’m also alert to the most opportune times to trade and limit my trading when conditions aren’t ideal. Finally, I gain insight from every trade I make by having a thorough review process. Take time to write down your trading rules to create clarity to your trading and ensure you stay disciplined.