The NEW Rules of Day Trading in 2022

The NEW Rules of Day Trading in 2022

The NEW Rules of Day Trading in 2022 1024 576 Steven Dux

Intro

When it comes to Day Trading, there are certain rules worth following. The problem is, 2020 and 2021 changed EVERYTHING. And so now, as we head into 2022 and beyond, there are new rules to consider.

I noticed this a few months ago, observing how this is going to be a year of trading like no other.

Circumstances in

the market

The circumstances of last year led to some truly unexpected changes in the world of trading that have trickled into this year as well (and I sense, in future years, too).  

3 months into 2020, when the world entered a lockdown and scuffled over toilet paper in the supermarket aisles, the global economy saw an upheaval that changed things more than it has in decades. A couple of years later, the market is still affected by these changes.  

Even though the market recovered pretty quickly...

The market jumped back after the brief bear market that happened when the pandemic started in full force. Of course, these changes impacted the way we trade and the way we must trade going forward. 

A lot more traders entered the market in the last couple of years which means tons of new accounts opened.  

According to certain Robinhood statistics, in 2020, the new accounts on their platform rose from 2 million to 12 million. All this (and more) led to a lot of changes, so now is a good time to discuss what we learned and which teachings we must carry forward into the future.  

What are the

new day trading rules 2022?

Whether you had a fabulous 2020 and 2021 as a trader, or you’re not doing so well—or you’re just starting off—it is always a good idea to pause and take a look at your current strategy to see if there’s something you can do to make day trading work even better for you. Because yet again, this year we’re in is like no other.

My most significant advice for 2022:

01.

BE CAUTIOUS AND MAKE STRATEGIC MOVES.

02.

THE VOLATILITY 2022 BRINGS MAY BRING AN IMMENSE SHIFT OF WEALTH BETWEEN THE BIGGEST PLAYERS IN THE STOCK MARKET.

I’ve noticed a dramatic change in the market conditions from 2018/19 to 2020/21. There has been a massive shift in buying and selling patterns in the stock market, and there are several new conditions (and new rules) that come along with it.

Hopefully, this set of rules will help you grow your account and avoid some common mistakes beginners tend to make.

As a beginner, it’s important to observe and learn from experienced traders — especially in volatile and unpredictable times. If that’s you, read on…

starting out

When I first started out, it took me a while to understand these common mistakes.

It took me months to sift through all the information available because there’s so much and most of it’s irrelevant and incorrect.

Even though I took everyone’s day trading courses, I did not work with a mentor at the beginning and had to navigate the waters of day trading myself.

Despite this, I built an $11+ million portfolio.

Now imagine how much you can make with the right guidance and knowledge…

For this reason, I made it my mission to help newcomers gain access to the right information and guidance. I want to help you find success, faster than I did.

And this article is yet another step towards this.

Some of these common mistakes are severe enough to wipe out your account, therefore rules are important. Rules keep you focused and on the right path. When money’s involved and pressure is high, it’s easy to get swayed so only a predefined set of rules can help you stay on the right track.

NEW DAY TRADING RULES 2022.

When stocks open in the market at the start of each day, they open rather sharply—often way higher or way lower than they closed at.

This forms a “gap”. A gapper is, therefore, a discontinuity in a stock’s chart where its price either rises or falls sharply from the previous day’s close with no trading happening in between. Many premarket scans revolve around looking for gappers.

In the “normal” era (i.e. pre-2020), the premarket volume of gappers used to be between 20 million to 40million. Back in 2018-19, anything between 10 million to 20 million was considered a crowded trade. Now, in 2022 crowded trades are over 40 million.

Due to the turbulence throughout 2020 and 2021, a lot of new players joined the market, pushing the volume way high. We saw a huge surge in the number of traders in the market. Growing unemployment and increasing dissatisfaction in jobs can be said to be the main reasons.

This made the market extremely volatile and I see that continuing in 2022.

changing nature of

the market

The volatility has increased even more due to the political climate of 2022.

Russia’s invasion of Ukraine has caused changes to the stock markets globally. This crisis in Europe will continue to be a focus for at least the majority of 2022, so as investors we have to keep an eye on the changing nature of the market.

Rule 1:

VOLUME DENSITY

When it comes to volume density, I’m establishing a couple of rules for myself and my students to trade in 2022.

These are:

  1. Whenever the premarket volume is over 10 million, you should consider it untradable. The reason is, too much volume potential can pour into the stock to make the stock jump 200-300%. This can be hard to handle.
  2. If the volume falls between 10 million to 20 million, consider this a normal stock to trade.
  3. If the premarket volume exceeds 40 million, it’s a strong indication to stay away from this trade and to not trade after the market opens because it’s impossible to predict whether it will drop or spike. If the volume is so high even before the market opens, it’s hard to predict what the volume will be like throughout the day and this will increase risk.
  4. If you want to trade crowded tickers, I always recommend waiting until 10:30 a.m. (i.e. an hour after the market opens) because the first hour is unpredictable and it takes you at least an hour to see how the trade might go forward.
  5. Two important times for you to take short positions come between 10:15 a.m. to 11 a.m. and between 3 p.m. to 3:30 p.m. Based on the past analysis, I’ve observed these to be the most predictable time periods.

Remember these rules when it comes to volume density in 2022 and you’re golden.

As I said, rules are what lead us to success in trading. It’s that logical. They keep you away from trading based on your gut or your emotions. Trading without rules and logic can be detrimental, especially in a year like 2022.

Rule 2:

DON’T HOLD ONTO YOUR STOCK (DON’T HOLD OVERNIGHT)

Traders often hold stocks overnight and into the next day in order to avoid a loss.

Don’t hold stocks overnight in 2022. Instead, take the loss and start fresh the next day.

2022 is not the year to hold onto stocks overnight because the year is going to be volatile enough without the risk of added unpredictability. If there is a massive difference between first-day volume and second-day volume, holding this stock overnight will introduce unnecessary and additional risks that you weren’t prepared for on the first day.

Let’s say the ratio of volume between the previous day and the current day is 20:1, then it won’t be a profitable proposition to have held on to the stocks because too many backorders will be trying to sell.

Holding stocks overnight increases the risk of unpredictability.

If you’re following the right strategies and proper risk management, one loss should not affect your account too much so let it go and don’t chase profits.

Everyone has losses. Even experts. I do too, frequently. The key is to not let your losses overpower your wins. Learn to let go of losses sometimes and resist the temptation to hold stocks overnight.

Holding onto a stock is a gamble because new market conditions get introduced every day. Conditions can change in just a few hours. If 2020 and 2021 taught us anything, it’s that conditions can change overnight too.

Rule 3:

KEEP UP WITH LATEST NEWS AND TRENDS

2022, as I said, is going to be a year like no other.

We must keep ourselves updated with what’s happening. Stay updated about stocks that are volatile and that carry opportunities by tracking the news.

A few ways to keep up with the stock market are:

  • Podcasts –  When you’re out and about or when you are doing chores, listen to trading news podcasts. They have interviews, news updates, tips and tricks, and other important trading knowledge. Here are some of my recommendations.
  • Google Alerts – Free and easy to set up. You can turn on Google Alerts to get notifications on your email.
  • YouTube – YouTube has some trading channels providing day trading knowledge and news. Go through my YouTube channel where I’ve dedicated many videos toward day trading for beginners. I also share weekly analyses, introduce new strategies, and more tips and tricks. I also have recommendations here.
  • Your Community – My program The Freedom Challenge, it’s not just a course but a thriving community of driven traders who help you stay focused, updated on the most relevant and significant news, and who share knowledge within the community. You should always look to join a private community where those around you direct you toward the “right” information.

Rule 4:

STAY LOGICAL AND AWAY FROM EMOTIONS

2022 is going to be a year full of opportunities…

But also one with lots of unpredictability! There’s no room for emotions here so do not get attached to the trades you make.

If a stock performs well for you, do not get swayed by the success. If it does not, do not get disappointed and work on future trades.

Keep your focus on your strategies. Have a proper trading plan and stick to it. Understanding how your own psychological makeup affects your trading is key.

Rule 5:

INTERESTS RATES ARE LIKELY TO RISE (WAIT 'TIL INFLATION SETTLES)

Due to the pandemic, inflation has become a serious problem.

But now with Russia’s invasion of Ukraine, it looks even worse.

For instance, gasoline prices hit an all-time high in the US in March 2022. When inflation rises, interest rates are likely to rise. This is because lenders demand a higher interest rate to compensate for the decrease in the purchasing power of the money they’ll be paid back.

Interest rate is the primary tool used by the Federal Reserve to manage inflation. Therefore higher interest rates are a policy to curb inflation.

When interest rates increase, people tend to borrow less because it’s expensive. In this case, the rate of inflation goes down. Therefore, an increase in interest rates is how inflation is kept down and the cost of living for the general public is kept down.

In 2022, interest rates are likely to rise, to curb the rising inflation. What does this mean for you? Well, if you’re yet to begin trading, my recommendation is to wait out this period of high-interest rates, until the inflation settles down. Reserve your capital and once this settles down you’ll have tons of opportunities to trade.

If you’re already actively trading, keep in mind that when you borrow money from your brokerage firm in order to short, they’ll charge you an interest rate if you hold overnight. In 2022, that interest rate is likely to keep increasing due to rising inflation.

The best thing you can do is avoid holding overnight positions altogether (as discussed earlier).

Aside from rising interest rates affecting trading, they will also affect any home loans or credit card debts you have so you might want to keep that in mind, as this affects how much you can invest in trading.

Rule 6:

THE MARKET IS SET TO COOL DOWN; FOCUS ON SHORTING WHEN IT DOES

As the effects of the pandemic fade, the volume in the market is going to gradually cool down.

Overall, a global economic turndown (or recession) can be expected in 2022. Surging inflation will certainly cool down at some point giving way to recession, while the Russia-Ukraine war only adds more uncertainty.

It’s understandable that emotions in the markets are running high, and a lot of buyers will drop out. What you need to do to sustain yourself in these circumstances is to focus on shorting. It’s possible to turn a profit even when the markets dip. You can take advantage of the upcoming market dip and set yourself apart from the new traders who fail.

In fact, a major chunk of my $11 million+ income came because of shorting. In shorting, you sell a borrowed stock in the hope that the price will fall down, and when it does, you sell it at this new low price, making a profit.

This can be done in a bearish market and is a good way to earn profits even if the overall market falls, which I predict will happen.

Rule 7:

NFT MARKET SET TO COOL DOWN; FOCUS ON DAY TRADING

As a beginner, you might be tempted to start trading NFTs and it is understandable.

Non-fungible tokens (NFT) became so popular that in 2021, NFT was the “Word of the Year” for Collins Dictionary. To put it simply, Non-fungible means something that is not replaceable.

Take a $100 bill as an example. This bill is fungible/replaceable because it can be replaced with ten $10 bills or hundred $1 bills. But let’s say you have a $100 bill from decades ago that belonged to someone famous. On the surface, both the bills have the same value since the number 100 is written on them. But practically, the old $100 bill that looks different from the current $100 bill and belongs to someone who is well known, definitely holds greater value.

That makes it a Non-fungible $100 bill (i.e. it’s unique and cannot be replaced). Another example would be a world-famous painting. Anyone can have the replicas but only one is the original.

NFTs are unique pieces of digital content. I have gone into detail on NFTs in this article linked right here. Even there I had suggested day trading is a better way to invest than NFTs, and in 2022 that will be more true than ever.

The NFT mania is cooling down and the bubble is about to burst. There has already been a significant decline in sales of NFTs with daily total sales down by 83% since January 2022. In addition to that, the average selling price of an NFT has declined to under $2,000, compared to an all-time high of almost $6,900 on Jan. 2—according to industry data tracker NonFungible.

These are clear signs of the NFT mania cooling down possibly due to geopolitical tensions and easing of the pandemic era stimulus. Another reason could be increased regulation. The U.S. Securities and Exchange Commission is scrutinizing creators of NFTs and the marketplaces of NFTs to determine if some of the assets don’t abide by the agency’s rules.

NFTs seems less and less like a lucrative investment option in 2022 and my recommendation would be to focus on day trading instead.

Rule 8:

BUILD AND EXPAND YOUR PORTFOLIO

One of the biggest changes in economic conditions that happened due to the global pandemic.

And now, due to geopolitical tensions is that various industries were affected. While some stocks gained, many others dropped.

The travel and tourism industry turned out to be one of the worst-impacted sectors. On the other hand, companies involved in eLearning, home entertainment, and virtual healthcare boomed. This is why you must always keep a diversified portfolio!

Wealth creation happens when you diversify your portfolio instead of restricting yourself to a few industries just because they feel familiar. Having stocks from various industries in your portfolio helps get balanced opportunities.

With a diverse portfolio, it’s easier to level out the impact of many economic changes that affect different sectors, because a diverse portfolio means you’ll have more than enough gainers to mitigate the losses. As they say, “don’t put all your eggs in one basket”.

For 2022, this will be even more important as the economic conditions and the market continue to be volatile and unpredictable.

Rule 9:

STRATEGY IS MORE IMPORTANT THAN EVER

Due to the changes that snowballed since 2020 (and that continues to occur well into 2022), all of us had to re-examine our strategies and had to adapt to the changes.

These changes and adaptations can unnerve beginners but if you are focused on your strategies, reexamining them and adapting them to changes should be straightforward.

The biggest mistake we can make in turbulent times is to stray away from our proven and tested strategies. A strategy that you can rely on can be your best friend in uncertain times. It helps you trade without stress because you’re sure of the results—no matter what the market does.

If you are doubtful in your strategy (or don’t even have one), you’ll end up trading from your gut — which never provides predictable results. Trading from your gut and without a strategy will give you sleepless nights and is why 94% of new traders fail during their first year.

You must let only logic and your strategies steer you.

Follow the tips we just discussed, stay alert. Eventually, you’ll get there.

In my trading career, I’ve learned that while trading is based on repeatable patterns and statistics, sometimes no two days are the same.

Sometimes every year we need to take a good hard look at our approach and make tweaks. To truly last the long haul in changing markets, toss your emotions out and follow the rules. Changing times come with a lot of challenges but also a lot of new learnings. When times are uncertain, we need rules to make us stay focused. They keep us grounded. They take us back to the basics.

Focusing on new rules as the market condition changes like this really help in selecting stocks in a faster and more efficient way. So don’t just pick stocks in a random fashion.

Take care of these rules.

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