Market participants are active in different market segments but the most exciting, skilled and therefore rewarding segment is day trading. A day trader enters and exits from the market on the same day. He has to be alert and fast responsive to the market movements. It has been experientially proved that the successful day traders stick to certain norms. These norms are not many but unless they are observed strictly and religiously, no day trader can earn profit consistently over the period. The golden norms of the successful day traders are explained in the following few lines.

1. Risk Management Norms

Amateurs chase profit, professionals control risk. Successful day traders risk only 1% of the deposits (earmarked for day trading) in one trade. In other words only 1% of their deposit is exposed to risk at any point of time. Similarly, successful day traders trade in only one or maximum two stocks at a time. This point could be better explained with the help of following example.

Suppose a day trader has deposited (earmarked for day trading) Rs.100000 with a broker for day trading. This trader can buy 100 shares of a stock @ Rs.1000 if the stop-loss is kept Rs.10 below the purchase price; thereby limiting his risk to 1% of the deposit (Rs.1000). Please note that even if the broker has given exposure limit of 5 times the amount of deposit, the trader would risk only Rs.1000 in a trade. Even if this trader is trading in two stocks at a time, the total amount of exposed risk would not be more than 1 % of the deposit.

2. Stock Selection Norms

Selection of stock for trading is the next crucial factor. The trading stocks selected by the successful day traders have sufficient liquidity i.e. volume. These traders only select the highly traded stocks which could be easily bought or sold at any time. Sparsely traded stocks are avoided by the successful day traders, only amateurs trade in such stocks.

Successful day traders select stocks after considering the price range. They do not trade in penny (very low priced) stocks & also avoid highly priced stocks. Affordable & momentum (having movement) stocks are preferred by the successful day traders.

3. Trade Panning Norms

Successful day traders plan their trades & trade their plans. In planning the trades, they are sure about the entry, stop-loss & exit levels well before they actually enter the trade. Successful day traders do not execute the trades hastily & directly online but put stop orders. They do not exit from trade hurriedly & directly online but put stop loss & exit orders in well in advance.

4. Averaging Norms

Research indicates that the successful day traders are very clear & cautious about the averaging of profits or losses. Day traders go for profit averaging only when the new average price of stocks is below their trailing stop loss level in long trade or when it is well above their trailing stop in short trade. This point can be explained with the help of an example.

Suppose a day trader has purchased 100 shares @ Rs. 400 & has put stop loss at Rs.395. Stock moves up to Rs.420. Trader expects the stock to move up to Rs.440 but he would buy additional 100 shares @ Rs.420 only if the new stop loss level is above Rs.410 so that even if stop loss is triggered, the trader will make some profit.

If the trader had short sold 100 shares @ Rs. 400 & had placed stop loss at Rs. 405, as the stock moved down to Rs. 380, he would sell short additional 100 shares if the new stop loss level is below Rs. 390, so that even if stop loss is triggered, the trader would make some profit.

Successful day traders never average loss unless planned in advance. If a trader had planned to purchase 200 shares @ Rs.400 with a stop loss at Rs. 395 but the stock suddenly moved up to Rs.410, the trader would buy 100 shares @ Rs.410 & wait for correction to buy additional 100 shares at around Rs.400. This is a planned averaging strategy adopted by the successful day trades. Purchasing 200 shares @ Rs.400 with a stop loss at Rs.395 & then shifting stop loss down to Rs.390 for buying 100 additional shares @ Rs.495 is loss averaging strategy, which is never used by the successful day traders.

5. Trade selection Norms

Successful day traders are not impulsive & compulsive traders. They have patience to wait even when stocks are jumping up & down provoking them to enter. Unless 100 % convinced about the market trend, stock trend, entry point, stop loss level & exit point, a successful day trader never enters a trade. Taking chances by making half hearted attempts without conviction is not a strategy of successful day trader.

The last truth in successful day trading is to loose the least when you are wrong & to make the most when you are right. Successful day traders are prepared to book minimal loss (1/3rd to 1/5th of expected gains) & have guts as well as conviction to wait till the trades mature and hit the predetermined price targets.

Successful day trading is an art but apart from skill, it heavily depends on self discipline. Majority of the amateurs loose money in day trading because they neither have skills nor self discipline to perform & practice this art.