Day Trading is a very popular profession, especially throughout 2020 and the Coronavirus pandemic. To Ensure Your Stock Market Success With Day TradingTrading Strategies you need to know these exposed day trading secrets that we described in this post. However, with the emergence of this new breed of career, there is a lot of unknown. New traders don’t really know what they don’t know and usually get a burst of luck. Buy anything and it’ll go up. It doesn’t have to be like that, however. Imagine you wanted to be an engineer tomorrow and you sat down to design bridges without having ever studied for it. I doubt it’ll work. There are rules that you have to understand when day trading. That takes a long time to discover and master. There is no one set of rules that is applicable to everything and every trader. However, there is something called a trading plan that outlines the specific rules that you have created to follow. In this post, we are going to talk about day trading rules and the creation of your trading plan.

What are the main rules that you have to come up with to follow?

  • Risk Management
  • Technical Plan
  • Scaling Plan
  • Journaling/Review Plan

Risk Management

 The first set of rules you should identify and look to follow involve managing risk. In trading, managing risk should be a trader’s primary concern and interest. Being involved in a risk heavy profession requires you to be very connected with risk management.

In this portion of the plan, you will have to break down the risk management process you will abide by in order to be rewarded with gains. The risk management rules can be broken down based on risk per time period. All these risk rules are based on the account size that you have.

First, identify how much you are willing to risk per trade based on the account percentage. Usually, we use about 1-2% risk per trade based on the account. Meaning if you are willing to risk $100, that being 1-2% of the account. That means the account has to be $5,000 to $10,000.

Then break down the daily max loss that you are willing to take. Assuming you are day trading and the daily max loss is 3% of your account. That leaves you with 1 trade if each trade is 2% of the account. Or… That means that you will have a tighter risk management trading plan. Scratching trades more often.

When you break down the daily max loss, you should also have a daily profit target that exceeds that max loss so on average you will have a positive return even if you draw down more on the account. In this scenario, I like a 2:1 profit to loss at least on the lower end.

If your risk management is good… You can have a highly profitable month with a low profitability percentage. If you have a 2:1 profit to take loss ratio, assuming you are trading futures. The S&P 500, you have a profit target of 2.5 points and a stop loss of 1.25 points. This 2:1 allows you to have a lower profitability percentage and still come out winning. Let’s take the 10 trade examples. In the tables below we have two scenarios. One in which you have a 2:1 profit ratio and take 10 trades, either hitting full take profit or full stop. Notice that after 40% of a win rate you start making money. In the second scenario, you have a higher profitability ratio. 3.5:1, meaning you will need less than a 50% profitability ratio again and even smaller, a 30% profitability in 10 trades.

profit ratio

Technical Plan

The technical portion of the trading plan is when you devise your strategies and how you will execute those trades. From trade planning to execution and exit then repeating the process. The technical portion of the plan usually includes all of the strategies that a trader has in his or her arsenal. Typically, divided into 3 common strategies. The pullback and breakout (momentum trading strategies) and the fade (counter-trend strategy).

The technical portion of a plan should outline the Next Best Trade, the trade that you anticipate to happen before the trade comes to be. It should also break down the qualifiers that you have come up with for each individual strategy. What do you want to see for each strategy to get you into a high probability trade?

To the other end, you should have a list of disqualifiers that would stop you from getting into a trade if it is not a high probability. And qualifiers that would get you out of a trade, whether it’s to scratch a trade that looks like it’s getting away from you or to get out at a profit area.

The breakdown of the technical plan is different for all of the strategies. The pullback is the most common and easiest momentum strategy to understand and implement. It involves waiting for the trend to continue one of two ways. The break and retest of a peak (high or low) or the pullback into an impulse start area.

The breakout strategy is next on the list, where a trader anticipates the break of a high or a low. Indicated by a day session higher, low or longer/shorter term. This is done in anticipation that the breakout will trigger stop losses and continue for quite some time.

The last is the fade idea, this is a counter-trend trade that is the riskiest out of them all because it’s a trade against momentum. Traders really need to break down the technical portions of their plans when taking on the fade, and should be the last strategy they learn out of the three.


Scaling Plan

The scaling plan is very important once a trader breaks through that point of breakeven and gets himself or herself profitable. Trading is about growing and learning. What better way to do so than trade larger contract size or earn bigger profits.

The scaling plan should be generated based on consistency and size. When a trader gains consistency using the smallest size they are originally comfortable with they should scale to the next level.

For example, if you are starting off, risking $50 a trade, from here you have made $100 gains per trade for the past month very consistently. Earning a 70% win rate. At this point you should scale up, start risking $100 per trade, with a profit target of $200. As you continue to see growth and consistency you should continue to scale. Whenever you get too comfortable with a position’s risk, it may be time to get uncomfortable again. Meaning scale up to the next level.


Journaling/Review Plan

The final portion of the trading plan, or the day trading rules to help you become the best trader you can be is the journaling aspect of your trades. How you journal and review your trades can make all the difference in your trading. The best place to start learning is where you’ve made mistakes and where you’ve done really well.

Some of the best ways to review your trades are through video, screen recording, or full-on recording yourself trade throughout a webcam. There are certain platforms that work better than others, such as Loom for screen recording. Or you can make notes on Evernote which is an older version of journaling. Make sure you review your trades and areas where you can make improvements.


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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.