Catch Moves, Avoid Day Trading Lock-Up
With the fast shifts in the market, traders are wanting to get in and get out with trades but are hampered by day trading obstacles.
Brokerage account limitations can cause them to lose out on crucial market moves due to the pattern day trader (PDT) rule. The rule states that traders with less than $25,000 in their accounts and who make four or more day trades over five consecutive business days totaling 6% of their account activity cause the rule to kick in. The brokerage can restrict your trading as a PDT violator.
Timing is everything. A locked-up account is the thing of great frustration for even a seasoned trader. A trader who buys a significant number of stock shares in the long position, then watches that stock rise after the squeeze is released, but then is unable to sell because the brokerage account hit its transaction quota, will remember that day for a long time.
It would be a bit like buying a self-driving car that kept driving you off a cliff. Who would want to get in that car?
Fortunately, Simpler’s traders have a strategy they use to avoid this situation – open a cash investment account. The typical account that investors open is by default a margin account and most traders don’t even need it. While some traders may need a margin for spread, traders with accounts less than $25,000 will not.
When Simpler’s traders open cash investment accounts, they are utilizing the buying power in their accounts. If a trader has $5,000 in their cash account, they exercise that cash to make trades. As an example, when a trader makes $1,000 in a day, that means they have $6,000 to work with the next. And, without going too much into the power of compounding interest, as an example, every day with gains is a new day with more money to trade.
To make the most of their buying power, Simpler’s traders have one primary goal ― to minimize risk by always using sound trading strategies. Taking a loss in a single day only means that the trader has less to work with the next. Therefore, Simpler traders ask themselves two questions when establishing strategy: How much risk am I willing to take? And, what price range am I comfortable with?
When Simpler’s Traders know they have a set amount to invest, they can make quicker gains when they stick with their proven strategies. Traders who don’t enact over-leveraged trades and who buy and sell within their buying power rather than on margins will find themselves untethered to the PTD rules put in place by brokers.
Whether swing trading or day trading, Simpler’s traders always want the ball to be in their court.