Day Trading Under Pattern Day Trader (PDT) Rule

If you are a beginner day trader you may not even know what the Pattern Day Trader (PDT) rule is. Essentially, the PDT rule restricts a trader to three day trades in a rolling five day period if the account has less than $25,000. A day trade is buying and selling the same security in the same day. If you buy and sell the next day that is not considered a day trade. If you have more questions about the PDT here is an article from investopedia.com that better explains it.

In this article I want to teach you how to day trade if you under the PDT.

Benefits of Pattern Day Trader Rule

It is very difficult to learn to day trade while being under PDT. If you are a new day trader, start with paper trading and practice your strategies for 6-12 months. Over time you will see that the highest probability strategies don’t occur everyday. The main benefit of day trading under PDT is DISCIPLINE. When you only have three day trades per week you have to be picky. You don’t have the luxury of taking ever opportunity that presents itself. You must learn to be disciplined and wait for the best opportunities.

A second benefit of day trading under the PDT is learning how to scale into a trade. The PDT rule allows a trader to place multiple orders, either long or short, before counting as a day trade. For example, if I by a stock at $100 per share and the price falls to $97 per share, I can keep buying shares and it does not count as a day trade until I start to sell the shares. This means I could purchase 50 shares, add another 50 shares, and then sell later in the day. You can also scale out of a trade and it only counts as a single day trade as long as you don’t repurchase the shares.

Workaround the Pattern Day Trader Rule

Another way day traders work around the PDT rule is to open multiple accounts. Lets say you have $10,000 to work with. You could open up accounts with two different brokers and put $5,000 into each account. You would then have three day trades at each broker, or six day trades for a rolling five day period. I know several successful traders who have used this method in order to have more flexibility.

Avoid the Pattern Day Trader Rule

If your still frustrated with the PDT rule and want to avoid it all together, there are other options. The PDT rule only applies to FINRA regulated brokers. There are several offshore brokers that do not limit the number of day trades you can take.  Capital Markets Elite Group is one but you can also get around PDT by trading CFDs with TradeNet.