Best Day Trading System

  • June 20, 2020

There are rules for every game, even day trading. Regardless of whether you’re trading stocks, Forex, futures, options, or cryptocurrency find the best day trading system. Therefore, what are some of the best systems that work?

Failure to adhere to specific day trading rules could cost you considerably. While rules vary depending on your location and the amount you trade, I will touch on some of the most essential and fundamental basics. So, pay attention if you want a fighting chance in this game. A good system in place will help you avoid emotional trading and it could be a disaster. 

Best Day Trading System

What Makes the Best Day Trading System?

  • The best day trading system is, in other words, day trading rules that can make you a successful trader. Whether you're day trading ETFs, stocks or options, having day trading systems that work are necessary.

First thing first, let’s talk about what exactly a day trade is. In it’s purest form, a day trade can be two transactions on the same financial instrument on the same trading day.

As an example, the buying and selling of the same stock; the two transactions must off-set each other to meet the definition of a day trade. Any positions held overnight is not considered a day trade.

1. Calculating the Number of Trades

The best day trading systems allow for the calculation of trades. Full disclosure: I still get confused when trying to calculate my number of trades and shares traded.

Unfortunately, sometimes, the end result is money lost and costly mistakes. In an attempt to prevent this, I have a few examples below. 

  • If you enter one buy order for 4000 shares and sell with two 2000 share orders, these three trades count as one day trade.
  • The reverse of the example above is also true. If you buy 2000 shares in two separate orders and close your position all in one order of 4000 shares, it's considered one day trade.
  • Alternatively, if you place two 400 share trade orders and closed with two 400 share orders, it counts as two day trades. It counts as two separate day trades as you have two transactions at either end.

If you live in the United States, one of the most important rules you need to be concerned about is whether or not you fit the criteria of a pattern day trader (PDT). 

For example, if you make more than three day trades in five business days and the number of trades is greater than 6% of total trades in your account during this time, you meet the minimum criteria. 

2. Best Day Trading Systems for Pattern Day Traders

Minimum Account Balance. The most stringent and demanding of all the rules for pattern day traders is having a margin account balance of at least $25,000. When your account falls below this amount, you won’t have any buying power. 

Buying Power. Your day trading “power” is equal to 4x the NYSE excess as of the close on the previous business day. The ‘time and tick’ method of calculating day trading is acceptable. Be aware though; if you exceed this limit, you’ll be issued a margin call.

Outstanding Margin Call. Unfortunately, if you already have a margin call on your account, your buying power is reduced to just 2x the NYSE excess. Further to this, you can’t use the “time and tick” method with an outstanding margin call on your account. Instead, you need to use the aggregate method which uses the total of all day trades.

Failure To Meet A Margin Call. If you can’t get more funds in your account within 5 business days, your buying power is reduced even further. In fact, it is whittled down to just one time the NYSE excess for ninety days (cash trades only) until you meet the call requirements. 

Minimum Requirements. When you put money in your account to meet either the minimum equity requirements or margin calls, it needs to stay in there for at least two business days. 

The Best Day Trading System for Beginners

  1. Day trading systems that work are listed below:
  2. Know when to exit a trade
  3. Time your trades wisely 
  4. Steer clear or margin
  5. Use a simulator
  6. Practice safe risk management
  7. Keep is simple

Now that the basic rules are out of the way, we have some rules for beginners to discuss. If you’re new to the arena, following these golden rules of day trading could help you turn handsome profits and avoid expensive pitfalls.

1. Know When to Exit a Trade

One of the biggest mistakes rookies make is not having a game plan for trading. What I mean by a game plan is a written trading plan with specific rules.

These specific rules will not only help you but protect you, mostly from yourself. And don’t even think about hitting the ‘enter’ key until you know when exactly you will get out of a trade. With this in mind, always use stops.

Stops are beneficial in that they can protect you on the down side or allow you to lock in profits on the upside. To do this, you need to plan your trades carefully with the precision of a brain surgeon.

Day trading systems that work are all about managing your risk. In the real world, this means employing stop-losses and strict risk management rules to minimize your losses (more on that below). Read our post on stop limit orders.

2. Time Your Trades Wisely

One of the best day trading rules to live by is to avoid the first 15 minutes. Instead of rushing in on the chaos at the market open, wait until the dust settles.

More often than not, there’s panic selling or buying due to trades trying to exit positions they held overnight.

Personally, I like to trade reversals, and this is a prime time to see stocks setting up for a good reversal trade. 

3. Steer Clear of Margin

In the beginning, when you’re struggling for capital, margin can look pretty tempting. Unless you fully understand margin, you should not use it.

Please remember, though, that margin is a loan and one you need to pay back. What’s more, margin is dangerous and can leave you with substantial debt as it magnifies your losses. I suggest you learn how to trade well first before relying on margin. 

4. Use a Simulator 

Don’t even think of hitting the buy or sell key without first learning how with practice money. Using a day trading simulator is a way to develop confidence in your trading decisions and trade without fearing mistakes.

Simulators often have real-time or slightly delayed market data, so you can monitor market conditions, and explore different charting tools and indicators.

5. Practice Safe Risk Management 

Stop only worrying about how you will enter a trade; the key is to know at all times when you will exit. Because the most important thing is to limit portfolio risk, the trades will take care of themselves.

Risk management has many names. You will find it called money management, bet sizing, or even position sizing. You want to live to trade another day.

The rules are simple: Don't risk more than 2% of your account size. It is always better to bet a small amount initially on any trade in case you're wrong - which can easily be greater than 50% of the time.

6. Keep It Simple

Many traders start out with what I call indicator fascination. More often than not, they dive into advanced analysis that often confuses and discourages them.

When I started trading, I thought that the more difficult trading methods would produce bigger winners or a higher probability of winning trades.

The reality is, less is more. I keep my charts clean with only about three indicators, and you should do the same. 

Final Thoughts on the Best Day Trading System

You can have the best trading strategies in the world but if your stocks don’t move or have low volume, you’re not going to be making money consistently.

Or, you could be just starting out and completely overwhelmed at the thousands of stocks available to trade. I get it; I was there.

Let Bullish Bears help you pick the best strategies and stocks for you. There’s no better time to start than now. Take our online trading courses to learn how to day trade.

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