Stock Trading Quick Tip: The Pattern Day Trader (PDT) Rule


(swoosh) – Hey, it’s Clay Trader at claytrader.com. In this video, I wanna talk about, at least top three of my
biggest pet peeves out there. It drives me nuts. I see it all the time and I just have to address it. So, I’m gonna do that
right here in this video and it deals with a
pattern day trading rule, but before we get to my pet peeve, let’s just talk about what the
pattern day trading rule is. You see this all the time, too, but the pattern day trading rule is just a rule, thanks to our wonderful government and I don’t mean to get all political, but this is just pure garbage, this rule, but it is what it is, but the pattern day trading
rule is a regulation, there’s no way around it. It just says over a
five day rolling period, so it’s not like a Monday to Friday or anything like that. It’s a rolling period. So, over that five day rolling period, you are allowed three day trades and a day trade is being
defined as when you buy and sell within
the same market period. So, the market opens up
at 9:30am Eastern time, closes at 4pm Eastern time. If you buy and sell a
stock within that period, the same stock, then that is a day trade and you are allowed three of those per a five day rolling period. So, yeah. Really stupid and I’ll just leave it at that. I disagree with the government regulation. I’ll just leave it at that, but my pet peeve starts when
you see this sort of thing. So, let’s say that you
have zero day trades left. Meaning, over the five day period, you have done all your day trades. So, you don’t have any left for the foreseeable future. For lets just say, the next few days. If that is the case, do you think your trade ideas should be long term? Or do you think you should be looking for short term-type trading things where you might need to
sell relatively quickly. I really hope this is an obvious question. You’re say, well, wow, that’s pretty obvious. You should be thinking long term because if you are not allowed to buy– I mean, you can always buy, but then the tricky part comes, when you’re not allowed to
sell within that same period or else you’re gonna get a nasty, little
message from your broker that warns you, hey, you’re being flagged
as a pattern day trader and you just don’t wanna get involved in any of that nastiness. So, when you have zero and you know that you can buy, but can’t sell, should you be thinking
longterm or short term? Hopefully, you’re saying longterm because what’s the point of trying to do a short term trade when
you can’t even sell then? And yet, I see it all the time. You see people say, you know, I’m in the stock, but I can’t sell because
I’m out of day trades. Well, then why are you even in the stock? That’s like the worst case scenario ever. Putting yourself in a position where then you might not be able to sell. I mean, think about that. And people do it all the time and it boils down to people just simply being too aggressive, too greedy, and not doing the most fundamental thing, planning your trade. So, I don’t know if you’ve
heard me say it before, maybe you’ve heard somebody else say it, but I say it and I’ve said it in multiple quick tip videos, but plan the trade, trade the plan. So, don’t you think part
of the plan is going to be, well, how many day trades do I have left? Now, if you have a bigger account, then this does not pertain to you, but a lot of people out there, they don’t have above
$25,000 in their account, so they do have to deal with this. But when you’re going through
the planning and you say, hey, I have zero day trades, this should be part of your plan. How many day trades do you have left? If you don’t have any, then, right there, you should
not be thinking short term. So, do I feel bad for people that say, I wish I could sell, but I don’t have any day trades left? No, I don’t feel bad for you. Why don’t I feel bad for you? Because why were you even putting yourself in that situation to begin with? You clearly failed to plan the trade. Now, I did it a couple times
when I first got started, so I don’t wanna come across as all high and mighty. However, it only took me, I think, maybe twice, before I figured out, wait a second, why am I planning short term trade ideas when I don’t have any day trades left. That just makes zero sense
and it’s extremely foolish. So, when you’re planning– I don’t even know what to say because it’s so silly to
put yourself in a situation where you can’t sell. I’m planning a short term trade idea and look at this great move, but I can’t sell or the price is going
against me and it got lower and it got lower. I can’t sell. And then when you
finally are able to sell, you blow up your account because you pigeon hold
yourself right from the get-go. So, when you get out there, what is the strategy
for pattern day trading? Well, you know what, if you have zero, sometimes
a strategy is just don’t trade at all. Wait until you get more day trades because, quite frankly, even if you are thinking longer term, what happens if something bizarre happens? Something weird happens? And all of a sudden the
stock just gets hammered. If you’re sitting there saying, I can’t sell because
it would be a day trade and I don’t have any day trades left and my broker has already warned me, then that’s just a very bad situation. So, make sure that you think about this. First, make sure that you understand pattern day trading rule. If this is the first
you’ve ever heard of it and you have less that
$25,000 in your account, run a Google search on it. There’s plenty of information out there. But, like I said, I’ve
explained it a little bit, but learn about the
pattern day trading rule and after you have learned about it, start to factor in that into your plan. Before you go into a trade, are you going to be able
to get out if you need to? And if you have zero left, then you are on extremely thin ice. Avoid it. It may seem super obvious, but when you’ve been
around as long as I have, I’ve seen more than enough
people come and make the comment, I’m out of day trades, so– I’m out of day trades, this. I’m out of day trades, that. And it’s just a train
wreck waiting to happen. So, avoid that at all costs. So, I didn’t mean to rant
and rave in this one, but, like I said, it
is a pet peeve of mine and the reason it’s pet peeve is because it’s very easy to avoid. There are some matters in trading where it can get a little, I don’t wanna say complicated, but it’s not quite black and white. This is very black and white. Either you have a day trade left, or you don’t. So, if this is the reason
why you’re taking losses and you’re whole strategy
is getting screwed up, it’s not a strategy at all because you’re not planning it right. So, very black and white and that’s why it does get under my skin and that’s why I was so angry at myself when I finally realized, wait a second, what am I doing? Why am I not factoring this
into my actual trade plan? So, definitely do that. And, like I said, very black and white. It’s one of these things where it’s, by no means, rocket science. Either you do or you don’t and I understand the whole
psychology behind it. Trading is exciting, I wanna trade, I wanna trade. Well, yeah, I wanna eat ice cream for breakfast, lunch, and dinner. I understand why you
would want to do that. I understand why I would
want to eat ice cream breakfast, lunch, and dinner, but does that mean it’s a good idea? Of course not. Same principle here. Sure you wanna trade, but should you be trading in situations where you’re not gonna be able to sell? Probably not. So, again, thank you for watching. Click the like button down below or click the share button up above if you’re watching this on my site. Leave your comments, I’d like to hear from you and share some experiences
of maybe some times where you got yourselves in trouble with having zero day trades left and then how that turned out. Maybe some horror stories
down in the comments will help persuade others to
be more disciplined with that and factor it into their planning process. Thanks for watching. Remember, trade without emotion. (swooshes)

90 thoughts on “Stock Trading Quick Tip: The Pattern Day Trader (PDT) Rule

  1. Is the 3 trades in 5 days rule only for US brokers, or also for EU brokers trading US stocks? Never heard of it before.

  2. Hey Clay.. I checked this yesterday with TDA and they told me that a Day Trade includes Pre Market and After Market. So the 4pm market close is actually the After market close of 8pm EST.

  3. Clay thanks for all of your infromative videos. Just wanted to comment on the pattern day trading rule and also trying to just go long term once you use all of your trades up before being labeled a pattern day trader. No matter how good you are and how much you study and plan for a long trade this pdt rule just limits you to making mistakes and thats why i finally just said screw it and now I do day trading and what a load off of my back. I tried to be patient and no matter what i did i always seemed to need to finish my trade before i wanted to and when i didnt it cost me so much money. I think our government uses the ptd ruling to keep the smaller traders at a huge disadvantage and it is just like everything else that is not fair in the financial world here in the u.s.
    Keep up the good work and good luck on all of your future trades. 

  4. Does anyone know of any foreign or overseas brokers that permit users to trade without the PDT in the way? I know of SureTrader and Alliance but they seem sketchy. Questrade is out of Canada but seem strict. 

    Are UK brokerages subject to the PDT rule as well?

  5. So if you get stuck in a trade, can you get out after the 5 day period? Also, options don't have that rule, do they?

  6. Thanks Clay 🙂   I have a couple questions for you…
    I have over 25K in cash and over 50K in stock in my account.

    1. Does that mean the rule does not apply to me?

    2. I have multiple transactions that have not settled yet (T + 3), does that affect this in any way?

  7. Hypothetically:

    I start with $30K cash in my account.  I buy $30K of stock ABC and sell it the same day for $31K.

    Am I allowed to buy, say $30K of any stock the next day, or do I have to wait until the transfer settles in 3 days to buy again?

  8. Thanks Clay.. I'm new to this and the t-3 rule screwed me in one trade and I lost all my gains because I couldn't sell..   This is the video I was looking for and answered a lot of questions.  My question is..what happens when you get these warnings from your brokerage account about too many trades in the five day period?  What's the impact to my account? Keep up the great work!

  9. I have 4 questions:

    How do I become a day trader?

    Do I need to go to college?

    Would 1600 USD be sufficient enough to start trading?

    Can people under the age of 18 begin trading to build experience and an account?

  10. This is a good rule. Why should the government trust rookie traders with margin loans only to have their account wiped out with a unreliable strategy.

  11. Great video and good information. The PDT rule does not protect the novice investor from himself or the market. If the government wanted to protect the novice investor from himself and others and if the government wanted to help the trader to succeed in the market it would have traders educate themselves first, then it would have them tested for competency and only when they past these test would they be licensed to trade. Trading is a profession like any other profession full or part time. You need a license to drive a car; you need a license to drive your own car EVEN IF IT IS ONLY PART TIME. Traders should be held at least to the minimum standards of trading competency. Without the proper education in technical analysis, risk management and trade management, trading is gambling. In California and in most states in the country if you want to alter the electrical wiring or the plumbing in your house you need a license contractor to do the work and if you want to do the work yourself you must file for a permit and then past a test to prove that you are competent enough to do the work.The government doesn't want you to burn down or flood your own house; why then would it allow you to burn down and flood your financial house?

  12. Hey Clay, what are your thoughts on SureTrader? I know you mention that this particular broker doesn't have the PDT rule. But, what is the downside of being an off-shore account?

  13. I have lost hundreds of dollars trading spreads on weekly options and not being able to hedge myself because I run out of "daytrades"… thanks to this rule.  Great video and Ive become your newest subscriber.

  14. Can you clarify something for me for account under 25k? When you said 3 "day trades", does 1"day trade" equal to 2 transactions such as buy/short sell and sell/buy-to-cover of the same stock? If it is, so 3 "day trades" is 6 transactions per 5 day rolling period? Or 3 "day trades" is 3 transactions like buy, sell, and then buy?

  15. I'm glad in Canada we don't have this law. Getting 25K is hella a obstacle to impose on people from participating in the free market.
    Can you imagine if the teachers on school playground tolds kids, only the kids with the biggest bag of marbles can trade their marbles unlimited. While the people with smaller bags can only make 3 trades a school week.lol

  16. Hi clay, nice video really informative,
    I've just setup a new account with tradestation with $40k in cash account, and i didn't get any margin because they said of my experience in the stock market. what's the best course of action to take because i need margin to go short on stocks. and also the funds that i traded with on friday have not been settled yet and they could take up to 3 working days to show in my account, so i can't trade until the funds are in my account. im really confused because just like you were explaining that "anything over $25k in your account and you shouldn't have a problem day trading" is what i was learned as well until I opened my first account.

  17. hahah this is really funny because i opened an account with TD Ameritrade. they gave me 500 free trades so I wanted to take advantage of it. I started to day trade wanting to 10-20 dollars per trade until the 500 free trades is up. after the third they gave me the flag and i panicked.

  18. Just talked to TD Ameritrade. The rule applies to ALL accounts. Even cash only accounts. You gave me false hope, man!

  19. Thank You Clay for the Video ! I have a question . Once you have $25,000 or more in your account, is it allowed to perform multiple entrances and exits in the same stock in one day ?

  20. I have a couple of questions about the PDT rule. First being if I have more than $25,000 in my account how many day trades am I allowed to make and over how long? Also do the exact same rules apply in Australia as that's where I'm from?

  21. Question, I did not make any trades all week and on friday i made 3 trades opened and closed them. Because the PDT rule, do I have to wait 5 days from friday to make more trades or on monday am i clear to trade again?..

  22. QUESTION: my acc got flag as pattern day trading , and i made 3 day trades this week Monday, Tues, and Weds. i have 1 more stock that i owned on Weds need to be sell.. so can i able sell it on Thursday ? or my acc will be restricted to closing for 90days if i trade on Thursday.

  23. I think the PDT rule is like those tricked out games on the midway of a carnival. The rifle is always off it sights. The hole is too small to sink a putt in, etc, etc.

  24. Hi bro, thank you for that amazing video, i have a margin account and stucked with this rules as i have less than 25k in my account, my broker offers 100% margin and buying power, but when you reach the 25k, do they offer 4 for 1 as margin ( 100k buying power for 25k) ? thank you

  25. I am putty sure but I might be wrong. If you use SureTrade it don't have the 3 days restrictions. Since it is not located in the USA. I might be wrong but I am putty sure it don't have it.

  26. Very useful video. Does this apply 3 day trades on a single stock, or are you limited to 3 day trades even if they are all different stock?

  27. what's up clay. quick question plz. By definition pdt rule reads "four or more day trades in any five consecutive business day period; the rule applies to margin accounts, but not to cash accounts." if the pdt rule doesn't apply to cash accounts it is safe to day trade in cash accounts?

  28. If u Don't have margin then u can trade as many times as ur buying power allows u too b4 settled funds r exhausted. Settled funds take 3 days to complete in order to prevent and minimize over trading and emotional indecision from novice and intermediate traders. PDT in reality can b looked at as a defined edge because it will slow u down from blowing out ur account if u lack screen time and a discretionary/systematic approach..

  29. Question, if you did 3 full trades on monday, then you buy some shares before the day is over, then the next day, tuesday, you can sell them correct? And can continue with that pattern of Buying one day, sell the next, until the next monday where you have your 3 day trades available again?

  30. How is someone with 25k more sophisticated than the person with 24,999. It's a form of control in my opinion. It keeps the middle class from taking risks. What the government doesn't realize is, risk is greatly diminished as knowledge about a risk is increased.

  31. Clay, I like you and think you have great information. But buddy let's get on with the program, we get it, it frustrates you. You told us 5 times, where are we going with this. You have knowledge, teach us.

  32. Hi Clay, first, thanks 4 all your informative videos, im learning alot from them. I got a question, you said in your video that we can make unlimit vertical options trades with a less than 25000$ cash account , i spoke with my broker (options house) and he said that i can only make 3 every 5 days, could you plz clear out this to me? Thanks in advance.

  33. Pattern day trader is a term defined by FINRA to describe a stock market trader who executes 4 (or more) day trades in 5 business days in a margin account,
    provided the number of day trades are more than six percent of the
    customer's total trading activity for that same five-day period.the rule applies to margin accounts, but not to cash accounts.
    The main rule is that in order to engage in pattern day trading you must
    maintain an equity balance of at least $25,000 in a margin account.The required minimum equity must be in the account prior to any daytrading activities. ~Wikipedia

  34. Because of that rule, and not having 30-35k to trade at the moment (Your gonna need at least some cushion to ensure staying above 25k), I just do swing trades with at most 1 day trade during period. That way if I need to get out of a trade the same day, I can. The next day I can close a trade no problem if I need to. What really sucks is how confusing transaction rules are as to whats a day trade. (buy 100/sell 50/sell 50) = 1 DT (Buy 50/Buy50/sell 100) = 2 DT (buy 50/buy50/sell 51) = 2 DT… BTW, for options calls/puts are different trades, so xyz call is different instrument than xyz put, as far as day trades, and each strike of a call or put is also a different instrument.

  35. Hi Clay thanks for the video it is very helpful! Lets say I do one day trade on Tuesday, One on Wednesday and One on Thursday. Will I get back one day trade on next Tuesday, One on Wednesday and One on Thursday? I know its kind of a dumb question but I just got locked in a trade because I was unaware of this rule.

  36. Can you be listed as a PTD if you're using a cash account with less than 25k or does this just apply to margin accounts? Im still new to this, so my bad if its a dumb question.

  37. so basically, if i buy stocks but hold overnight (which i know isnt always good), I would sort of escape this pattern rule. Correct? ive also watched your video on the ways to avoid the rule: cash account, etc.

  38. please clarify for me, so if i buy a stock today and sell it the same day thats already 2 day trades? but what if i buy a trade and hold it overnight? is it 1 day trade? thanks

  39. I spent the past month learning about stocks, and slowly building my account to $2,000 so I could get robinhood instant… got instant today, and just learned about PDT as I was day trading. I'm out of trades on day 1 (Friday 3/31/17) When will I have another trade?

  40. im confused, so i can only do 3 day trade of the same stocks or trade 3 different stocks? please elaborate it

  41. If i buy 3 stocks in the same day, sell 2 of them after 3 days, and sell the last one on the 5th day. Will i have 3 day trades after the 5 days, or will i have 2 trades 5 days after i sell the first two, and 1 more 5 days after the 3rd trade? Basically what i am asking does the day trades come back after the purchases of the stock are made or after I sell the stock itself?

  42. So apparently Robinhood defaults with a margin account? I don't see anything about account type on the app, and there is a section under the settings that gives you the option to avoid a trade that would get your account flagged.

  43. Everyone should go to the SEC's website and complain to them about this stupid rule. Tell them what you think and how it directly discriminates against the poor by creating two sets of laws, one for the rich and one for the poor. And if they try to argue that the government is just trying to protect you make sure you tell them how it's perfectly legal for you to gamble all your money away at the casino and that the government even runs its own gambling racket – the lottery.

  44. So this is just happens in america? If I'm in Germany using the Interactive Brokers I don't have to worry about that?

  45. How is it counted?
    Is it: Buy and Sell (of the same stock) = 1 of your 3 trades for the 5 day period
    or
    Buying of a stock is 1 of the 3 trades, then the selling of the same stock is 2 of your 3 trades for the 5 day period?

  46. Clay Trader i am not actually a pattern day trader and i dont have 25k in my account i am kind of new to trading.i bought stock and sold it the same day and my broker sent me a message saying round trip trading 1 and i dont know what that means

  47. I am new to trading and ur videos are very useful. My understanding is , I can buy and sell A stock once on Monday; buy and sell B stock on tuesday ; buy and sell C stock on Wednesday ; so 3 day trade chance is over; after that I will only buy some stock Xyz for Thursday and Friday !!! If I do like this, will I be marked as PDT? Please help with this

  48. Hi. If i buy $1000 worth of a t+1 security on Monday and i sell it on the same day for $1100. The $100 profit will have to wait till tuesday, but can I still trade with the $1000? Or not? Thks!!

  49. Well this video kicked my ass! Especially since it's Friday, and I have no more day trades left to close my position. LOL!😉😥😉

  50. I like your point of view on PDT rule. I started an account with 8k from the beginning, blew that up then add 50k more to it to be able to trade freely. That was the most annoying rule they came up with and it had to be from “The Land of The Free”. No other country have such rules! You’re also right on most cases when my account was under and I didn’t have anymore trades left I was too afraid to swing trade to the next day thinking the stock my drop within the day and I can’t sell it. Most other YouTubers regurgitate “it’s there to protect you”. Will it protect me when I can’t sell my position on my last trade when price drop or bad news comes out right afterward?

  51. Hey Clay trader. Under PDT rule, are you able to buy a stock and then add the stock, then sell the stock? Or does it class as a day trade when you add to the previous buy? Thanks.

  52. Robinhood flagged me early on, but let me back after 3 days as they made the mistake. Being frozen from trading once was enough for me to know I need to get a 25K, or above bank to freely trade.

  53. If I buy 10 times in one day then sell the entire position before the end of the day is that 1 day trade ? Is after hours in the same day ? If I buy 20 times in one day then sell everything the next day in one sell ?

  54. The PDT rule does not apply with a cash account. Say you have $5,000 in your brokerage account, you can day trade as much as you want in a 5 day period. You can day trade as much as you want in your cash account. The only limitation is the amount of money you have in your account, you could buy and sell $100.00 worth of a $1.00 stock ten times a day in a CASH account.

    People explaining the PDT rule need to emphasize that the PDT rule is for a "margin account" only and NOT a CASH account. Clay does not mention it in the video.

    It leads new traders to think they can only have 3 day trades in a 5 day period. And that this PDT rule will only be lifted from them when they have finally built there account up to $25,000. I guess people teaching on YouTube just assume people know this. But I have found many new traders do not know the difference between a cash account and a margin account. Hope this helps you new traders.

  55. I had zero day trades left and i didn't know it. my rent money, child support, gas and grocery money was invested. Everything except my weed money. Longs story short I was all in on an stock before an earning report an stock gained 4 dollars. I tried to sell with no luck. The next day the stock went down 10 dollars. I ended up holding the stock for six months before i made my money back.

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