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Rule #1: Never hold a position overnight.
Day traders trade frequently and, as a rule of thumb, always close all trading positions before the end of day. By doing so, traders significantly limit their risk exposure to after-market surprises. It also lets them start the next trading day worry free, with a fresh mind.
Rule #2: Only trade stocks with prices over $10 dollars and average daily volume larger than 300,000 shares.
This rule makes sure that the bite from bid/ask spreads is limited and that the day trader can always get in or out of any trading positions.
Rule #3: Cut loss promptly.
By sticking to this prudent caution, day traders can make sure to preserve trading capital and stay in the game until they develop a consistent and profitable trading system.
These 3 rules should never be compromised if one wants to become a successful day trader.
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