Day trading is all about planning and executing. If you don’t know how to create trading rules, you may be in for a rude awakening. However, you could always learn how to create day trading rules. It’s not hard, and having day trading rules is extremely important when you’re first starting out. That said, let’s take a look at how you can create your own set of day trading rules.

What are the rules for day trading?

When you’re day trading, it’s of the utmost importance to set trading rules to manage any potential scenario. This helps to instill discipline, which is highly important to become a successful trader.

  • Create a plan: write out and know what you’re willing to risk before you get into any trade
  • Make a day trading rules journal: record your plan, and analyze what went right and wrong in your trades
  • Let your winners ride and cut your losses quick: don’t sell your winning stocks too early, and admit you are wrong about losses before they become too costly
  • Be patient: resist the urge to trade for fun and wait for the right opportunities

Create a Plan

For every trade you should create a plan. This means you should write out your thesis, possible scenarios, entry, stop-loss and target prices. Before you get into any trade, you need to know when you want to get in, the amount you’re willing to risk and where you think the stock could go to.

For example, Jason Bond is great at creating day trading rules for himself.

day trading rules

If you look at these trades, he has a clear plan. BOXL is a great example. He notes there’s good support at $6, so if it breaks below that, he’ll most likely be out of it. Moreover, he may look to enter the stock long as close to $6 as possible to minimize his downside. Jason also notes his target price.

Kyle Dennis does the same thing.

day trading rules

His plan is detailed, and you know exactly why he wants to get into the stock, where he’s looking to buy the stock, take profits and stop out.

Make a day trading rule to journal

Nearly all successful traders swear by journaling their trades. When you keep a journal and write out your plan, as well as how you traded the stock, you should get better over time. That means you need to approach this without an ego. Write down what you did wrong, as well as what you did right. If you only focus on your winners, you could just be treading water and not making any money. You need to focus on what you’re doing wrong so you can minimize your risk. Generally, you would learn more from your losers than your winners. It sucks to write out losing trades, but you just need to push forward and approach journaling with grit.

Let your winners ride and cut your losses quick

Managing your losers could be the difference between being a successful trader and a mediocre one. If you really want to be successful in trading, you need to admit when you’re wrong and cut your losses quickly. Many traders face the problem of the sunk cost fallacy, where they think because they’re already down they should hold onto the loser. This isn’t trading, it’s just gambling.

On the other hand, you should let your winners ride. For example, assume you buy 600 shares of stock at $20 and think it could reach $22 by the end of the day, and your stop is set at $19.50. Well, let’s say the stock moves to $22 with heavy volume within an hour of your entry. Well, you could just sell 300 shares when it reaches your first target. Thereafter, you could hold onto the rest of your shares and move your stop to say $21. A lot of times, stocks could move farther than you think, and that’s why you need to let your winners ride.

Be Patient

A lot of day traders tend to get bored throughout the day and start trading for fun. You should never do this. You need to be patient and look for your setups. Whatever you do, don’t get into a stock just to trade. Sit on your hands, be patient and wait for the markets to give you an opportunity.

Last Words

If you’re serious about day trading, you should follow these 4 day trading rules and continue to create more rules for yourself. Day traders who don’t set rules for themselves could end up losing a substantial amount of their capital simply because they didn’t have a plan, journal their trades, cut their losses quickly and weren’t patient.


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