Writing About

Pete Renzulli asked:




As an online stock trader, part of your responsibilities is understanding when to trade more actively and when to use more leverage. To have a long and rewarding carer as an equity trader you need to understand how to run your business on a daily basis. When my family owned a pizza parlor in NY it would have been great to be making pie after pie all day however that wasn’t reality. You only made a pizza when there was a request, you made many of them when the store was busy.

When you are sitting at your screen you need to understand when it is busy. To define this even deeper, you want to know when institutions are involved. Since we are seeking to jump on their backs we want to know when they are involved. The tool we use to determine this larger involvement is the NYSE TICK. There is also one for NASDAQ, but we feel the info from the NYSE TICK is sufficient.

The TICK represents the number of upticking stocks versus downticking stocks at any one particular moment in time. Reading the absolute number all day is not necessary but there are specific readings to pay attention to in order to make an informed decision regarding your activity level, trade expectation and leverage.

If the TICK has readings of +500 or -500 but no more than that, there is very little institutional order flow or activity. When I see this, I slow down my activity level, lighten up on my leverage and DECREASE my expectation for each trade (meaning I expect to make less per trade).

When I get consistent pushes of +1,000 or higher or -1,000 or lower I know the big boys are around and I will increase my leverage, activity level and my leverage. I am expecting FOLLOW THROUGH now.

This simple but effective tool will be a great gauge for your trading. Monitor it for a few days, I am sure you will be very happy to add this to your arsenal.

Ron Taylor asked:




Flipping in and out of stock may be a great way to scrape small profits off price dips and swells, but unless your stock portfolio account has an equity and cash position of at least $25,000, you will run afoul of the pattern day trader rule.

The pattern day trader rule limits your ability to buy and sell the same stock in the same trading day, unless your account portfolio has a cash and stock value of at least $25,000.

This is just one additional hurdle you need to jump before getting involved in penny stock day trading. This rule stipulates that you must have at least $25,000 in cash or stock value in your portfolio to move in and out of the same security on the same trading day.

Generally, an online broker will allow you to “get away” with one or two trades per week on what they call “both sides of the market,” but they could theoretically reject your order requests at any time.

When I was first starting out in this business I had about $5,000 in my account. I came across a stock that was moving up and down in intraday trading and decided to try flipping the stock a few times.

After my third buy and sell transaction that day, I received an alert from my broker. It notified me of the pattern day trader rule, and suggested I deposit $20,000 into my account to meet SEC guidelines.

Right. I had $20,000 setting around looking for a home.

My subsequent attempts to trade on both sides of the market were met with “Cannot accept this order” type messages.

What Exactly Is This Rule?

According to the SEC, a day trader is any trader who buys and sells a particular security in the same trading day and does this four or more times in any five consecutive business day period.

Here’s a more legal way of saying basically the same thing:

A pattern day trader is defined in Exchange Rule 431 as any customer who executes 4 or more round-trip day trades within any 5 successive business days. If, however, the number of trades is more than 3 but is 6% or less than the total number of trades that trader has made for that five business day period, the trader will not be considered a pattern day trader and will not be required to meet the $25,000 criteria for a pattern day trader.

More Legalese

According to http://www.patterndaytraderrule.com, this rule is, “this rule applies to anyone who buys and sells a particular security in the same trading day (day trades), and does this four or more times in any five consecutive business day period. A pattern day trader is subject to special rules. 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.” Please visit the site referenced above for a complete legal description.

Now that you know more about this rule, you could technically make a few day trades each week without violating SEC rules. However, some authority has been given to online brokers to judge your trading patterns, which could lead to being labeled as a day trader, despite your efforts to trade within the non-pattern day trading rules.

You should also be aware of the “five consecutive business day” comment above. Apparently, the clock does not reset on Monday morning. If you placed several day trades on the previous Friday, these may be a part of the same five day period on Monday.

Why Is There A Pattern Day Trader Rule?

In general terms, the investment community and the Security and Exchange Commission felt the popularity of day trading was causing beginning retail traders to lose too much money in the marketplace. In an effort to curb the day trading mania, they decided a trader should have a minimum account balance before being bale to practice this trading strategy. I guess they figure if you are worth $25,000, you have the knowledge and experience to flip stocks.

I have a different opinion on this. Yes, the SEC may have had your best interests in mind, but I believe (unfounded opinion here) that the institutional investors resented the range bound trading of stocks due to flippers constantly scraping tiny profits off a stock’s movement. Imagine a stock is rallying on good news. As the stock rises in value the flippers come into the market. A flipper’s mentality (us day traders, that is) is to sell quick, thus deflating the asking price in our hurry to sell out and move along with our small profits.

Flipping can frustrate a stock’s move up, which drives the institutional guys wild. Due to their position sizes in a given stock, they cannot move in and out of the stock as quickly as retail traders. When you look at all the money invested in the stock market, keep in mind that about 80% of it is controlled by institutional investors. These are predominantly the mutual funds, pension funds, and insurance companies.

Remember the old saying, “he who has the gold, makes the rules?” Because of their sheer size, the institutional investors get to make the rules-the pattern day trader rule.

What Can I Do About This Rule?

I despise most rules, and see some of this governmental meddling as a slight on the capitalist system. But, I’ll save those comments for my college term papers.

The pattern day trader rule may be helpful to some of you. As you build your account value to meet this requirement, learn how to trade and profit on swing trades. The experience you gain as a stock researcher and technical analyst will pay dividends later when you join the fast paced day trading community.

Michael Pergrem asked:




So you want to know how to become a day trader. Well I am happy for you. Being a day trader is one of the best careers on earth in my opinion. You can do what you want, when you want. You do not have to answer to anyone. All you need to do is learn how to become a day trader. That being said, it is not as difficult as one might think to learn how to become a day trader. All you need is sound advice and a little patience. If you follow this short guide, you will be on your way to learning how to become a day trader today!

There are three things someone should look for when they are learning how to become a day trader. The first think to look for is an undervalued company. An undervalued company is a company that is very specialized but can contribute to a larger company with its specialized knowledge. If a specialized company with a low stock price strikes a deal with a larger non-specialized company in the same field, the specialized company’s stock price is sure to jump very quickly! Learning how to find specialized companies is a big step in learning how to become a day trader.

The second thing to master when learning how to become a day trader is find pending deals between companies. For example, is the specialized company with the small stock price was to strike a deal with a the large company, you can jump in before it happens and share some of that company’s profits! This has worked for many countless times and is my favorite method of finding great penny stocks to day trade. This was how I first learned how to become a day trader.