The market is behaving erratically and the volatility can catch many new traders off guard. If you’re actively trading throughout the day and you seem to be losing more than your gains, then step back and follow these basic rules to safely navigate the current market.
- Only trade stocks that are above the 200 SMA on all timeframes, and above the 20 and 50 SMA on the 5 minute timeframe.
- Only trade stocks that are above the 50 EMA on the 1 Hour timeframe.
- Only trade stocks that are above the 40 RSI on all timeframe, and above the 50 RSI on the 1 Day timeframe.
- Do not trade before 9:35 AM EST. If you’re absolutely new to day trading, then wait until 10:30 AM or later to trade. Use the time to observe the market and feel how it’s behaving using the SPY.
- Only trade stocks above the VWAP.
Here are a few rules regarding risk management and position sizing:
- Only trade stocks after you determine the stop loss (SL).
- Take profit when the price hits X * (ENTRY – SL) + ENTRY, where X is 2 or higher. This is the Reward part of the Risk/Reward.
- Do not lose more than your 1% of your trading capital, if the stock hits your stop loss.
- Determine the amount of shares you should by based on the 1% rule using the following formula:
Amount of Shares = 1% (or less) of Capital / (Entry – SL)I’ve created a free, open source risk management script on TradingView to help traders automate the position sizing part of the risk management strategy.
Good luck and be safe in these trying markets.