This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
I got tagged as a pattern day trader by Zecco yesterday. I thought that MLK Jr.’s birthday would count for the 5 day rolling window, but apparently not. I’m trying to work it out with them, as I didn’t intend to violate the PDT rule, but in the interim I’ve got a $24,000 margin call. Until it gets resolved, I’m afraid to trade at all lest I get some kind of penalty. Undercapitalization strikes again. This infuriates me–the SEC’s pattern daytrader rules are a joke. It’s supposed to protect small investors, but all it does is limit my risk control ability. They’d hate for me to control my risk intraday when markets are liquid, but they’d like me to hold overnight when anything can happen.
I really REALLY need to develop a inter-day trading system, something like buy the close, or something else. Anybody got $24k I can borrow ;) or trading system ideas covering two+ days? What would Trader-X do if he held overnight? (I think just asking that question makes little kittens burst into flames, somewhere.)
This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com
January 17th, 2007 at 2:56 pm
oops! Do they sound like they are going to work with you on it, or are you stuck?
January 17th, 2007 at 3:02 pm
I finally got through to somebody on the phone, and he told me he would refer it to their compliance department and tell them I didn’t mean to violate. I’m waiting to hear back from them about what they are going to do, but I’d give it a 60% chance that I’m “stuck”…
January 17th, 2007 at 7:11 pm
Not trying to be nosy or anything but isn’t the rule that you need at least 25K?
Good luck, undercapitalization is something that plagues many of us small traders. Maybe a prop firm is an option for you? I wish I could explore that, alas I’m quite far geographically.
January 17th, 2007 at 7:22 pm
@Eyal: Yes, 25k is the rule. I have about 1k, hence the need for 24 more :)
I’d love to get access to prop, if I could daytrade my own style and platform as well as fit it around my work schedule. I just wish I knew where to look for that kind of deal.
January 17th, 2007 at 8:35 pm
I’m no expert, but I’m pretty sure a prop firm would want you trading full-time.
January 18th, 2007 at 7:18 am
Lately I’ve been looking for good swing trade charts — stocks currently trading in a persistent up or down trend, but are pulling back a little (Dave Landry’s favorite set up) — then getting a high probability “daytrade entry”, usually on a bounce off the 5 MA. I’m usually in and out in 2-3 days, and I’ll exit if the price drops below the prev day low. I haven’t done a real “daytrade” in a while, and I’ve had a reasonably good (for a noob) past 2 months.
January 18th, 2007 at 11:53 am
I am no expert. but i do not believe this is a margin call that you have to meet. This is not a Federal margin call. In fact, if they do not cut you some slack you should NOT attempt to meet it.
The PDT margin call, i believe, only restricts you from opening new positions for 90 days or till the account equity is above $25k.
i am not sure why would be trading with a $1k equity to start with, but that’s a whole another topic that i’d rather not get into.
The easiest way to resolve your current problem is to move your account somewhere else.
I recently switched to TradeStation and it is soooooo superior to my old brokerage accounts. In addition, their platform prohibits you from opening positions in violation of the PDT even if you try, unless you have the equity that is.
They have a monthly fee unless you trade 5k shares a month. that’s not an issue for me, but with $1k equity may be hard to do.
As for your multi-day setups question. There is an interesting blog out there, called StockMonster (.blogspot.com). Mike, who runs it, has a formula to buy stocks that suffer from panic selling. he buys them at the open, and sells then next open… i.e. not a day trade. He publishes his plays BEFORE he plays them, and in 2006 he achieved phenomenal results, almost miraculous results. i could never get myself to play his system, i just hate catching falling knives, but i assure you that his returns in 2006 were many many times better than mine.
January 18th, 2007 at 12:18 pm
I also follow the Stock Monster blog… I think it’s in the “blogs I read” links. It’s a very interesting approach, I agree, and I also have trouble trying to catch falling knives like that.
January 18th, 2007 at 12:38 pm
Update:
I have to write an “I’m sorry” letter and then not do it again, but then they’ll hook me back up. I’ll have to be more conservative on my daytrades and be mindful of holidays.
As far as why do I trade with 1k, that’s all the risk capital I have right now. This article explains it all. While I’m learning to trade, I’d rather lose 10% of my 1k account than lose 10% of a 50k account. If I can gain profitability with free tools on a small account size, I should be able to transition to a larger account and continue the trend; at least that’s my plan. The only reason I can trade at all with a balance this small is because of Zecco.
Thanks for the leads on swing trading styles, everybody!
January 19th, 2007 at 3:44 am
With 1K it’s going to be tough to implement proper money management.
I personally do trend trading (2 weeks to the recent one I’ve been holding for over 2 years) with some pattern trade for shorter term trades. I’ve got some training CDs available (details in my website) for the methods I use, if you’re interested email me I’ll work out some off-my-pocket-discount for you.
I’d put 10K as minimum to have ‘ok’ money management, 20K to have good money management to ensure that when my trades go bad it doesn’t bankrupt me. I guess that’s the reason for 25K rule?
January 19th, 2007 at 6:45 am
@Bobby: Not sure what you mean about money management? With no commissions drag, he can scale all the way down to 1 share positions, if that’s what the amount of risk calls for. He’s just trying to learn, and not make a living (yet).
I’ll check out your website, thanks!
January 24th, 2007 at 6:57 am
Update: My account is back online! I know the entire internet has been waiting breathlessly for my saga to play out, and I just wanted to let everyone out there know that it’s all over. ;-) I’m still without a swing trade strategy, so I guess I’m in research mode unless I take the odd Trader-X play once in a while.
January 24th, 2007 at 1:17 pm
Have you considered the swing trade ideas every day from alphatrends? They seem pretty sensible to me. Plus, the videos go over the rationale, so you can agree or disagree with the analysis. It’s not just a list of picks.
January 24th, 2007 at 3:53 pm
@Richard: I’ll get over there. Thanks for the lead. :)
January 24th, 2007 at 4:07 pm
Looks like the sound is messed up on the market review alphatrends video right now… the one with the ideas for tomorrow should come out later tonight. Maybe you will get some ideas about one way to formulate swing trades.
January 28th, 2007 at 9:44 pm
Sorry was missing this entries from my browser history!
Richard, money management refers to how much money you can risk at 1 open position without you risking too much of the overall capital.
Example that I use: max open position is 5, capital is (say) 10K, and each of the open positions I have should only risk max 2% of total capital. So each open trade has a max value of 2K, and the stop loss is risking less than $200.
Hope it clarifies (or confuses more:) )
January 28th, 2007 at 10:35 pm
@Bobby: I know what you mean, but I don’t understand why a $1k account, with 5 $200 positions, risking at most $20 each isn’t exactly the same as your hypothetical $10k account. It may mean he only has like 2 to 10 shares of some stocks, but with $0 commissions, it hardly matters for learning purposes, right? What am I missing?
January 29th, 2007 at 8:05 pm
Richard,
If you have 0 commish, and you’re allowed odd lots of 1 or 2 shares for each trade of $100 - 200, and each price movement is $.125, yes you’re right that it’s no difference. Each tick will only move you .125% and most likely your stop loss can accommodate that movement.
The difference will kick in if you trade lots of 100, with price of $1 or $2, that same 1 tick of $.125 movement will become 12.5% or 6.25%, which is too tight for a proper stop loss considering the max risk is 20% for each position.
I would normally allow at least 3 - 5 ticks spread between entry price and stop loss to make space for fake price gyrations.
January 29th, 2007 at 8:52 pm
Prospectus would need to confirm it, but I think he can trade odd lots. in fact I think one of the trades he posted here was 27 shares or something.
January 30th, 2007 at 6:25 am
@Bobby:
With Zecco I can trade odd lots. I could buy 1 share at a time if I wanted. And you are exactly right that a $200 position in a $1 stock with wider spreads and fluctuations is far riskier than a $200 position in a $100 stock.
I guess it all comes down to how to best use your capital to generate maximum profit with minimum risk. This is something I have been thinking about as I’ve started to trade through Zecco, and Richard’s consistency of profits article as well as your comments, Bobby, have also got me thinking. I’ll write a new post about it–Please continue to comment there!