Stock Trading
Feb. 7, 202412 min read

10 Stock Trading Rules You Need to Know

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Written by Tim Bohen

With the market so hot, there’s no shortage of trading tips … So how do you know what stock trading rules to follow? Which should you avoid?

Having the right set of stock trading rules is a crucial part of every trader’s trading plan. It’s what separates the smart traders from the rest of the pack.

One of the first things traders should do is decide on a trading plan and a set of rules to follow.

Now, let’s get into the 10 stock trading rules you need to know…

Stock Trading Rules: Why Do They Exist?

Why do rules exist? It’s not always to break them…

Stock trading rules exist so traders have a better chance of avoiding big mistakes. 

Following an effective set of trading rules can help any trader become smarter. It’s all about finding what works for you.

Every trader needs a well-thought-out set of stock trading rules. For beginners, it’s especially important. It’s your guide to navigating the markets every day.

Trading rules allow new traders to find the setups that fit their trading goals — and avoid those trades that don’t. 

The Importance of Knowing Stock Trading Rules

Many new traders have a tendency to see opportunity everywhere … which is great. But it can also be a good way to blow up your account quickly. Jumping in and out of trades randomly is never a good idea…

Seasoned trading pros have a set of guidelines to help them find their best setups and avoid the bad ones. That’s key for long-term trading careers.

So here are some stock trading rules you need to know…

10 Stock Trading Rules You Need to Know When Starting Out

There are a lot of rules you’ll need to follow on your trading journey. Let’s start with the basics.

#1 Have a Trading Plan

No matter what you trade or how you trade — tech stocks, penny stocks, day trading, swing trading, position trading — it’s important to have a trading plan.

A trading plan is a trader’s set of instructions. Think of it as the blueprints for a dream house.

In order to build your dream house, you need a plan. Same with trading. In order to become a smarter trader, you need a trading plan that fits your goals and fits your account.

#2 Use the Top Trading Tools

The technology available to traders today is amazing. I wish I had some of these tools when I was starting out… 

Charts, scanners, watchlists, and indicators are a few of the tools almost every trading pro uses every day. 

StocksToTrade has some of the best trading tools out there. Beautiful charts, built-in scanners, indicators, news feeds, and more help make the trading day easier. Take them for a spin — start your 14-day trial of StocksToTrade for just $7 today!

#3 Avoid Premarket Trading

I tell traders to avoid premarket or after-hours trading. It’s a stock trading rule I recommend for all traders. Even if you have experience, these are tough times to trade.

Premarket trading is from 4 a.m. to 9:30 a.m. Eastern, and after-hours takes place from 4 p.m. to 8 p.m. 

In day trading, we look for big breakouts in the premarket. We might spot stocks that are likely to make big moves once the market opens. But it’s much harder to navigate in the premarket. Stocks are much more volatile — and there’s less volume, so it’s much harder to trade. 

This goes for after-hours and extended-hours trading as well. I think trading during these times is an unnecessary risk. My advice is to trade during market hours and use the time when the market’s closed to build your plans instead.

#4 Don’t Fight the Trends

This comes up a lot in the webinars I teach. 

It’s important to learn to trade with the flow of the market. This is where you want to be a follower, not a leader.

Trading with the market trend basically means playing to momentum. This is a stock trading rule that can help new traders plan entry and exit strategies and determine good setups.

For example, if a stock seems to be tanking, I wouldn’t recommend trying to buy the dip without being confident the stock will reverse course or has reached its support line.

Trading with the trend can potentially help lower risk.

#5 Know Your Order Types

When you find a good setup and want to enter into a trade, you’ll have to choose which type of order you’d like to place — a market order or a limit order.

With a market order, you buy your shares at whatever price the broker is able to get them. This can be risky if the stock price spikes or tanks quickly.

A limit order allows you to set a per-share price limit. That way, you don’t spend more on a stock than you think it’s worth. 

Beginners need to learn this lesson fast. Market orders may be executed quicker, but in my opinion, using a market order is a terrible idea. This is another smart stock trading rule. 

If you try to get everything at market cost, you’re pretty much at the will of the algorithm. 

Your order might be filled at a price way higher than you wanted or expected. And when you’re trading lower-priced stocks, every cent counts. 

#6 Stay Up to Date

Today’s markets can be incredibly volatile.

The 2020 market set new records that are continuing into this year. In my 15+ years of trading, I’ve never seen so much activity or so much volume…

We had a lot of big market-moving news last year. World events can shift momentum in the blink of an eye. Smart traders are always on the lookout for unfolding events, business news, hot sectors, emerging trends, and more. 

StocksToTrade’s Breaking News Chat helps you keep up with the news that matters to traders. Two market pros sift through the chatter and alert members to developments that can really move stocks. Get a 14-day trial of STT + Breaking News Chat for just $17 here!

#7 Don’t Be Greedy

This might be the most important stock trading rule on the list…

Don’t be afraid to take profits too early. Many traders have a tendency to hold onto trades far too long … It’s a symptom of FOMO. But it’s important to keep realistic expectations.

Smart traders set realistic goals, take profits when they can, and realize that a small loss can be a win. They don’t want to get stuck in a trade for too long — that’s what we call bag holding.

#8 Keep a Journal

If you’ve been reading these posts or watching any of the free videos on the STT YouTube Channel, you probably know this by now. I talk about it all the time… 

Keeping a trading journal is key to growing and developing your skills. 

A journal can help you track your progress, develop your trading strategy, and learn from past trades. You have to constantly view your past trades, wins/losses, and strategies. 

This rule is a must … It’s especially important in a hot market. 

#9 Remain Calm 

Trading can be a rollercoaster ride. I should know — I’ve been doing it for 15 years. 

To truly last in the markets, it’s important to keep your emotions out of your trades. Avoid buying or selling on impulse — that’s one of the easiest stock trading rules to break.

If you take a loss on a stock, take a deep breath and walk away. 

Look back afterward to evaluate what happened. Do NOT panic.

Everyone loses. It happens, even to the best of us. Yep, even the pros. Try not to think about what you could have made. That can hurt your decision-making in the future. Instead, work on your trading plan and always remember to try to trade with discipline. 

Don’t get caught up in the hype.

#10 Stick to Your Guns

In every trade, there’s a winner and a loser. Everyone wants to be the winner.

If you have a setup or a strategy that’s working — stick with it for a while. Work on it, build it up. It may not work for every single trade, but that’s OK. You may have to adjust your strategy as this crazy market continues to change, but that’s also OK! 

Don’t go dumping your entire account trying out 30 new strategies … Try to stay focused and adjust to the trends in this volatile market

Stay disciplined and stick to your guns.

Conclusion

There you have it — 10 stock trading rules you need to know.

These are rules every trader should follow — but remember, your education doesn’t end with them.

Every trader has to continue to learn and adapt to the market. Understand you’re going to make mistakes, so don’t shy away from them. Instead, learn from them! Be ready to do the hard work. 

If you’re looking for more stock tips, check out our free content here on the StocksToTrade website and our YouTube channel

And of course, check out what I think is the best trading platform out there, StocksToTrade. I could list every feature, but I think you should see it for yourself. Find out how our platform can help you — get your 14-day trial of StocksToTrade for just $7 today!

Which stock trading rules do you follow? Leave a comment!

Frequently Asked Questions About Trading Rules

Why Do You Need $25K to Day Trade?

You don’t need that much, but any less will mean you’re under the pattern day trader (PDT) rule. Many traders start with smaller accounts. So don’t get too hung up on the size of your account. When starting out, the most important thing is to hone your skills and your trading plans. Keep a journal, track your trades, take small gains, and work to grow your account over time.

Why Does Robinhood Limit Day Trading?

Robinhood, like all brokers, requires U.S. traders with less than $25,000 in their accounts to abide by the pattern day trader (PDT) rule. That means traders with smaller accounts can’t make more than three day trades in any rolling five-day period. 

Robinhood placed separate restrictions on some volatile plays following the January run-up in GameStop shares, citing clearinghouse deposit requirements. 

Who Is Allowed to Trade Stocks?

Pretty much anyone and everyone! All you need to do is set up a trading account and start doing your research to find your strategy. Learn more on how to day trade here.

Which Trading Strategy is Considered the Best?

There isn’t one strategy all traders consider the best. Every trader is different, with different goals, skills, and accounts. Traders use the strategies they find are best suited to them. 

What Makes a Good Trader?

Solid stock trading rules and routine. You want to build a good foundation and smart habits. So study the charts, learn the patterns, build trading plans, read the news, create watchlists, and practice. 

What to Look for When Trading Stocks

Several things. Ideally, you want to find stocks that fit your trading plan. You want to find the stocks that fit your setup. So how do you find them? A trading platform like StocksToTrade can help. 

How Do Beginners Trade Stocks?

A beginner should be like a sponge and absorb everything. Studying, preparation, research … it’s important for a new trader to figure out goals and risk tolerance.