1) Create a written intraday trading plan. – Without out it you’re cannon fodder for more experienced intraday traders. You need to know exactly what it is you’re going to do before the trading session starts, each and every day. Whether you plan to day trade stocks, emini futures, commodities, or anything else, it doesn’t matter. For example, if the plan is to trade momentum or breakout stocks, you will certainly need to know exactly how you will scan for or locate those stocks to trade. How will you enter trades? Market orders, limit orders, buy-stops? How will you exit trades? Will you use price targets, trailing stops or some other exit strategy? Will your trading plan primarily use price indicators/oscillators or will you use pure price action to initiate your trade entries and exits? You will need to know answers to all of these questions prior to trading with real money and really even before to practice on a trading simulator. Which brings me to my next intraday trading tip.
2) Start with a trading simulator first. – Don’t even think about day trading with real money until you have become consistently profitable on a high quality trading simulator first. What’s the point in rushing things by opening up a day trading account and immediately starting to trade with real money? That’s what fools do. Keep your trading capital safe, by trading with sim dollars until you have good, consistent results from the simulator and enough confidence in your trading plan to execute trades without fear of inevitable loosing streaks.
3) Start with an adequate account size – For day trading stocks, due to the SEC’s pattern day trader rule, most brokers will require a minimum of $30,000 to open a day trading account. But, you should expect a draw down in your account, since you will be just starting out and most likely will be making mistakes. So, in reality you really should consider starting with a minimum of at least $40,000. This should be money that you or your family does not need to pay living expenses.
4) A Stop order should be used on every trade – No exceptions. This is probably the most important tip I can give you. Unless your trading plan includes some type of counter-trend or pair trade that allows for multiple entries at different price levels if price moves against your position, you must always use a stop. Otherwise, what will happen is the trade that you intend on only being an intraday trade is going to soon turn into investment and you’ll be without some trading capital.
5) Understand and use Position Sizing – One mistake that many novices make is to put all their trading capital and often even more using margin, on only one trade, stock or strategy. Using the most basic position sizing technique simply requires you to split up your account into several blocks of money to buy or short individual stocks or use the split capital to trade different strategies. Trading with too many shares on one single stock or strategy opens you up to too much risk from possible losing streaks.
Successful intraday trading requires knowing much more that what I’ve presented here, but these five tips are absolutely essential for a novice to know before trying to make money in the shark infested waters of today’s markets. I’d like to leave you with with one last piece of day trading advice, don’t take profits too soon. Another huge mistake that novices make, is thinking that it’s OK to take a profit no matter how small, as long as it’s a profit. Wrong! Many, if not most traders make money by trading strategies or systems that have a win% of 50% or less. Therefore, your average winning trade is going to have to be substantially larger than your average losing trade to make an overall profit. This is only possible if you are patient enough to let winning trades run. That’s where trailing stops and/or price targets come in, but that’s a whole different discussion for another article.