Rules and Strategies of Day Trading

The financial markets see a lot of action on a day-to-day basis. Markets rise and fall depending on various economic factors and the news headline featured on news platforms and social media. If you are an investor looking to capitalize on the daily market movements, day trading is the way to go. 

There are two types of investors, the short-term holders, and the long-term holders. Long-term holders find assets with long-term growth potential and of various investments longer than a year. However, short-term holders like day traders look for quick returns over a one-day or less period. 

Day trading is a risky business that requires hours of daily analysis of asset prices and studying where in the market they can buy and sell to maximize profits. You use platforms like as a recourse to keep you informed about markets.  

In this article, we’ll take a look at: 

  • What is Day Trading
  • What are the Advantages and Disadvantages?
  • 9 Rules and Strategies of Day Trading

What is Day Trading

Day trading is a form of short-term investment. Day traders quickly buy, sell, and short stocks (equities) throughout any given day while markets are open. 

A day trader is less concerned with the long-term performance of a company or asset, and only interested in how various factors affect the price volatility of a stock. 

Types of Day trading

What are the Advantages and Disadvantages?


  • A day trader can take advantage of how markets react to news and work with the volatility. 
  • Day traders have no overnight risk of gaps or earnings because you cash out by the end of each day.
  • A trader’s earnings can compound faster, as you can use the previous day’s earnings for the next day. 


  • Trading fees from brokerage can add up fast if day traders place multiple trades in a day. 
  • A day trader might be up against computer algorithms that work much faster than the average person. 
  • Day traders have to concentrate for long hours to analyze their positions and make quick decisions or lose potential profits in the process.   

9 Rules and Strategies of Day Trading

As there are many rules to day trading, here are nine rules and strategies you can use: 

1. Try to avoid trading for the first 15 minutes after markets open

The first 15 minutes after a market opens are panic trades or orders placed the previous night. Beginner traders should avoid this time and rather look for reversals. You can spend the time looking for better opportunities. 

2. Do your homework

As a day trader, you need to stay updated with the latest news and trends in the financial world. Check reliable news platforms, study company trends, and reports, and study technical indicators

3. Have a selling plan

A trader needs to think about when to sell a stock, not only thinking about what to buy. You need to know in advance when you plan to exit. Set a time target in addition to your price target. 

4. Limit and market orders

A limit order is when an investor sets a buying and selling price. However, a market order only guarantees an execution, not price. Limit orders give you more control over your trades. 

5. Use Pivot Points

A pivot point strategy is a good way for identifying critical support or resistance levels and acting on them. Also, range-bound traders can use pivot points to identify entry points, while trend traders can use pivot points to locate breakout levels. 

6. Avoid margin trading

Margin trading involves borrowing money from a broker to finance part of a trade. If used properly, margins may increase returns. But if the trade goes poorly, the margin will increase your losses. It’s best to avoid margin trading until you have enough experience. 

7. Be aware of regional differences. 

Different markets around the world have different regulations and tax loopholes. You will need to research where you want to trade so that you don’t run into any issues. 

8. Stop-loss controls

Always be aware of the risk. Stop-loss controls will control the risk of prices moving opposite to the position you speculated. You can exit a trade and not suffer huge losses, so it’s best to implement stop-loss controls. 

9. Set aside funds

As a general rule, day traders do not have more than 2% of their trading account at a time. Set a limit to the amount of exposure you want for trade, and don’t exceed it. For example, if you have $20,000 in your account and risk more than $400 per trade. 

Final Thoughts

Day trading can be an exciting method for short-term investing. Yet, it takes discipline, research, and a high tolerance for risk. There are many strategies you can follow as well as rules to work by. Day trading requires a strategy that suits your goals and ambitions. If you stick to your plan, you can make a sizable profit. 

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.