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Day Trading Principles

Iron-Clad Rules

  1. Don’t place more than 10 trades in a day
  2. No more than 3 losses in a day
  3. Each loss must not exceed a set amount you put in place (so the maximum loss on all 3 trades doesn’t deplete your account or put you in a sour mood)
  4. Always place a conditional order to exit the position
  5. Always give yourself at least 1x ATR margin on your limit & stop orders when exiting a position
  6. Always enter a position size that doesn’t violate ANY of the above
  7. Don’t chase price action, give yourself at least a few minutes between each trade (you only have so many in a day)

General

  1. Determine the overall market trend, are the indexes in the green or in the red?
  2. Observe price action for the stock/ETF you’re seeking — does it jive with the overall market trend?
  3. Confirm a momentum
    1. The market breaks its previous swing high or low
      1. A breakout candle will usually be large and/or have small wicks
      2. Big wicks below green candles during uptrends show strength in buyers. Big wicks above red candles during downtrends show strength in sellers.
        1. Known as the pin candles, it signals a price action that a reversal will occur
    2. When candles are trending upwards, if there is very little overlap between the bodies then it’s a strong trend (and implies urgency)
    3. Gaps between the bodies of candles as well as small or no wicks show urgency
      1. A gap on a downtrend can be a good indicator it’s going to tank, or on an uptrend that it’s going to rally
    4. When drawing trend lines (above peak in downtrend, below trough in uptrend), if it breaks the trendline then it could be a sign that it’s going to reverse direction.
    5. During sideways action, if there are more green then buyers may gain control — if there are more red then sellers may gain more control.
  4. Don’t be afraid to let the stock ride itself out till the end of the day, especially if you’re holding a losing hand you want to see it through.