Day Trading Rules and Setups

This is the summary of the one of the chapter from a book called 'How to Money Trading Derivatives' by Ashwani Gujral

1. do your Homework
The trader should study the specific stocks and dericvatives and their relation to the overall market atleast for one hour other than market hours.

2 Stick to the Schedule
Before the market opens the trader should have list of potential stocks based ont the previous day homework.
He should review how these stocks behaved day before and draw conclusion based on the study.

3. Learn how to manage your Loss
If the market is not acting to your expectation, just get out. Big losses always start from small losses.

In a day trading scenerio, and unless there is some unexpected news, eight out of 10 times the market forms a range in the first couple of hours by establlishing high and low, and then towards the end of the day breaks out or down from the range and establishes a direction.

4. Maximum shares per Trade
In choppy sideways market you should also reduce your volume. When the markets are slow, reduce the exposure size

5. Number od Trades per Day
the maximum nuber of trades should be five per day. This is also justified when trader is trading more than one stock per day.

6. Avoid Trading during the slow period of the day
Trades are consistently more successful before 11 am and the after 2 pm. This is because before 11 am you tend to catch the highs or lows of the day and after 2 pm you catch the breakout.

7. A very simple technique to reduce the risk in day trading, and even in swing trading situation, is to buy oversold and sell overbought.

Cont......