10 Strict Guidelines For Day Traders

This trading guide is for day traders.  

1. You will not be a scalper. Until you are highly experienced at tape reading, avoid scalping.  Even then scalping should be minimal because it distracts from trading larger moves.  Plus, the smaller moves place you in competition with computerized trading, i.e. HFT programs.  You cannot defeat computerized trading.
2. You will be a selective day trader. The right kinds of market conditions are not present for every trade, and it is psychologically demanding to day trade every minute, day in and day out. One tremendous advantage you have is freedom of choice, you do not need to take every signal or trade every market. You do not need to be in a position before a FED moment or trade every news announcement. You have the luxury to wait and watch and witness the market’s reaction before taking action. If a market is "newsless" and quiet, or range bound, you can always relax and let your most important quality—patience—work for you.  Less is more.  Master one style first.
3. You will treat day trading as a business. It is not a part-time diversion. It is very demanding. You need total focus and total concentration. To be totally focused you must eliminate outside distractions. Lock your door if you have to. I know from personal experience, the more outside annoyances, the harder it is for me to trade effectively.
4. You will feel good. If you do not feel well, you cannot day trade effectively. If you stayed out late last night drinking or are physically ill or have emotional stress from outside influences, you should not do any kind of trading and this is especially important when day trading. Day trading is much more demanding and it is absolutely essential you be sharper and quicker than your competition. When the optimal "set-up" presents itself, you must feel strong, because you will not have the luxury of hesitation!
5. You will be totally disciplined! What this means is you will follow written and well-defined rules systematically, which is the only way to avoid the emotionalism of the markets. In other words, you will construct a game plan, which you will follow without bias. Let me repeat this, you will have NO biases. (I have always had bigger losses when I have had a strong opinion and overruled my technical game plan.) If you do not follow your game plan, you will miss some of the best and most profitable trades. What will your game plan look like? It will have well defined entry and exit rules. It will be well thought out where you will not be stopped out too often.  It will be flexible according to changing market conditions.  It will tell you when to stop trading. Your rules will be very strict in terms of capital preservation, especially during drawdown periods. Personally, I will not tolerate a drawdown of greater than a certain fixed amount in any single day or any single trade. Total discipline means you will always use stops (just do it), and never cancel a stop just because the market is getting close to it. Finally, never add to a losing position.  Trade what you see.
6. You will never let a decent profit turn into a loss. Here is what I do: if I have a reasonable profit on paper, I move my stop up so that, if half of these profits slip away, I am out of the position. The reason is obvious; in this way you escape with at least a portion of your profits.
7. You will become very cautious after a "Home Run." After you make a big hit, the temptation to overtrade grows geometrically. After a home run, look for singles (reduce size or better yet, take time off).
8. You will go only where the action is. It is essential to be aware of the current trading environment. Day trading requires volatility and liquidity in the right stock. Not all markets are volatile enough to allow for ranges required for consistent profitability; you need a market that not only moves, but moves within a limited time frame.
9. You will day trade only markets suited to you. Not every market is suited to everyone and there is no rule that says you have to trade anything and everything. For day trading, I like stocks, options, the S&P futures and crude oil futures. 
10. You will understand that greater confirmation means you will enter the trade later than sooner.  Most of the time I will begin with a starter position and add upon increased confirmation.

*** This content is edited and modified from an article by George Kleinman.  The author has been contacted in regards to this post.

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