All right, so let's talk about the
pattern day trader rule, because
this rule requires that you
have at least
$25,000 in your trading account if
you are day trading.
But here's the tricky part.
The tricky part is that you could
trigger this rule even
if you're only swing trading,
if you're not day trading.
So in this video, I'll show
you what the pattern
day trader rule is.
I'll show you how you can trigger
it, even if it's accidentally.
I'll show you exactly, and explain
to you, what happens when you
trigger it, and how
you can avoid it.
So what is the pattern
day trader rule?
Now, according to FINRA,
who set the rule, a pattern day
trader is a trader
if you execute 4
or more day trades
in 5 trading days.
So if you execute 4 or
more day trades in 5
trading days, then you're being
flagged as a pattern
day trader.
And again, this is not a good
thing. But let's talk about it.
So what actually is
a day trade?
And a day trade is a
trade that you open
and close during a
trading day.
So as an example, if you
buy a stock at the open, at
9:30 Eastern Time, and then
sell it before 4:00 pm
Eastern Time this is when you
are placing a day trade.
Now, very, very important: this
whole rule only
applies to stocks
and options.
So it does not apply
to futures, does not apply to
forex, and it also does not
apply to binary options.
It only applies to stocks and
options. So how can you
actually trigger this rule
even if you're swing trading?
Well, it actually happened
this morning. So my head coach,
Mark Hodge and I, we were trading
with our Mastermind members.
And I asked Mark to place a trade
in my account, and he accidentally
placed it in the wrong account.
And you see, I have a rule.
And the rule is when you make a
mistake, liquidate.
So I asked Mark to close the
position and that counted as
a day trade. So because we opened
it and then we realized, oh, we made
a mistake, so we closed it right
away. So we now have
one strike in this account.
And again, if we would get 4
strikes within 5 business
days, then we are flagged as pattern
day traders.
Now, here's another scenario.
Let's say that we enter a trade
tomorrow and it hits the profit
target or stop loss on the same
day. So this would be
another strike, right?
Because now we are also entering
and exiting during a
trading day.
So as you can see with
this, even if you're not day
trading, it is possible
that this could happen a few times.
And again, if this happens 4
times within 5 trading
days, then you're flagged
as a pattern day trader.
Well, what happens when you
trigger this rule?
Well, first of all, if you have
more than
$25,000 in your account, nothing,
because it doesn't matter, right?
Because then you are good,
because that's what the pattern day
trader rule says, that if
you are a pattern day trader,
then you need to have $25,000
in your account.
Now if you don't, then
you will be restricted to
trade on a cash
basis only for
90 days.
So what does this mean?
Well, see, as a day trader,
you actually do need a
margin account.
And when you trigger the pattern
day trader rule and cannot put
$25,000 in there, this means that
now you are restricted
to trading with cash only.
So let me give you an example.
So let's say you are trading
the Wheel trading strategy.
And you put
$20,000 in an account, right?
And this means if you put it into
a margin account, that you
get $40,000
in buying power.
So when you trigger
the day trading pattern rule, you
no longer get this buying
power here, the 2:1 leverage.
You are now basically going
back to whatever cash
you put in there.
OK? So this is what happens when
you trigger this rule.
Now the question is, how can
you avoid this?
Well, and I want to give you three
things how to avoid it, three
very specific actions.
So obviously, number one, have
$25,000 in your account.
So if you have
$25,000 in account, then no worries.
But if you don't, right?
So you want to make sure that you
count the number of day
trades. So leave it on a sticky
note, count the number of day trades
that you do even if
it is accidental, as we just talked
about. So for now just say,
write down a date on a sticky note
and when you had a day trade, so
that you entered and exited in a
trade in the same day.
Or you can avoid it here
by trading a cash account.
So if you're not trading a margin
account, you don't have to worry
about it. And then, of course, if
you are trading futures, forex,
bitcoins, so cryptocurrencies,
or if you are trading binary
options, this is also when
the day trading pattern rule
does not really matter.
Anyhow.
Now you know what the pattern day
trader rule is, how you can trigger
it, even if it is accidentally, what
happens when you trigger it, and
how you can avoid this.
So let me ask you this, at this
point, was this helpful at all?
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