Some traders have a big problem with day trading rules… especially the pattern day trader rule… But seasoned traders know why rules matter.
Day trading is one of the most fun and possibly life-changing activities you’ll ever find.
But too many people think it’s all about luck … You just pick a few winning trades and you’re on your way, right?
If you think like that, first I’d argue it’s time for you to find a mentorship program — like our SteadyTrade Team community.
But before you even take that step, you need to know what day trading is all about. You also need to know important day trading rules. Some of them were put in place by the government to protect beginner traders. Yep, like the pattern day trader (PDT) rule.
If you’re considering becoming a day trader, this post will set you on the right path.
Let’s dive right in…
Table of Contents
- 1 What Is Day Trading?
- 2 What Makes Day Trading Difficult?
- 3 8 Day Trading Tips You Need to Know
- 4 Ready to Day Trade? StocksToTrade Can Help You
- 5 The Bottom Line
- 6 One Platform. One System. Every Tool
What Is Day Trading?
Before we take a closer look at the pattern day trader rule, let’s define day trading…
Day trading is when a trader enters and exits a position in a stock on the same day.
For example, let’s say stock XYZ is trading at $10 as the market opens. You believe the price will rise, so you purchase 1,000 shares. Later in the day, XYZ is trading at $11 … So you sell your shares and lock in a profit of $1,000 minus commissions.
That’s totally hypothetical, but congratulations, you’ve just completed a day trade.
It’s not always that easy, though…
Day trading is a fast-paced trading style. In volatile markets, traders can make — or lose — money fast.
Plus, if you’re looking to day trade with a small account, you need to be aware of certain day trading rules and limitations…
Let’s examine those a little further.
What Is a Pattern Day Trader?
A pattern day trader (PDT) is a trader who makes four or more day trades in any five day period.
The concept was developed by FINRA, a government body that regulates the stock brokerage and securities industry. It acts as a line in the sand for separating active and non-active traders.
Why does this matter? Because there are certain day trading rules you need to follow as a PDT.
This brings us to…
The Pattern Day Trader Rule
If you want to day trade U.S. stocks, you need to be aware that the government has day trading rules for that. And it’s to protect newbie traders from blowing up their accounts.
It’s called the pattern day trader (PDT) rule.
This rule states that active day traders need to have $25,000 in their accounts at the end of the trading day.
In short, if you make three or fewer day trades in a rolling five-day period, you can have less than $25,000 in your account. You’re not considered a pattern day trader.
Make four or more day trades in a five-day period, and now your broker has to ensure that you have at least $25,000 in your account, or it’s no more trading for a few days.
Overall, the PDT rule is a good thing. It can help prevent newbie traders from being too active in the markets … Because if you don’t know what you’re doing in the markets, you can do some damage.
But the rule can be annoying to more experienced traders who want to day trade with a smaller account.
We’ll cover some solutions for day trading with a smaller account later in this post. First, let’s look at brokers and day trading rules…
Robinhood Day Trading Rules
Many market newbies start in the market with basic brokers like Robinhood.
Robinhood became famous a few years back for offering commission-free trading and user-friendly mobile app.
I don’t recommend Robinhood … But since it’s popular with newbies, let’s examine its rules for day traders.
Since Robinhood is an American brokerage, it follows the PDT rule.
Opening an account is pretty simple. There are no account minimums for a regular account, but if you want to upgrade to Robinhood Gold, you’ll need at least $2,000.
Robinhood has basic trading capabilities. There’s not much in the way of advanced charting, stock scanning, or news feeds — all common tools for advanced day traders.
It can be great for dipping a toe in the markets. But if you want to actively trade, I think there are better brokers out there.
TD Ameritrade Day Trading Rules
Some brokers are great for both beginner and advanced traders — enter TD Ameritrade.
TD Ameritrade is one of the biggest names in the stock brokerage industry. It’s a large U.S. firm, and trades on the Nasdaq.
It also follows the PDT rule. Its commissions are low, and it even recently started offering commission-free trading on certain order types.
If I were starting out as a trader today, TD Ameritrade would be one of my top broker choices.
Fidelity Day Trading Rules
Similar to Robinhood, Fidelity is a well-known financial brand that beginner traders and investors often use for their first market experience.
Fidelity is a huge firm, and one of the largest investment managers in the world. It’s involved in venture capital, stockbroking, and even cryptocurrency trading.
Yep, it follows the PDT rule. And it offers commission-free trading for certain orders.
So name recognition and a huge, robust company … But is it a good match for active day traders? Nope.
Fidelity is better suited for long-term investors and those interested in mutual funds. Need a thorough list of brokers for day traders? Check out this post.
Day Trading Under $25K
You may be wondering what happens to traders who have less than $25,000 capital…
Are they completely out of luck when it comes to day trading, at least until they grow their capital?
Not at all! It’s completely possible for a skilled trader to trade beyond the PDT rule, even with a small account.
One solution is to open multiple accounts with different brokerages. Another is to just trade less. That can give you more opportunity to study the markets, paper trade, and build a better strategy.
It’s also possible to day trade with an offshore broker that doesn’t follow the PDT rule. I don’t recommend this. These firms can be shady, and you’re not protected by the U.S. government.
What Makes Day Trading Difficult?
From the outside, day trading looks kinda easy.
But it’s not easy, and we see that in trading statistics. Fact: Most traders lose. This is a risky endeavor.
Why do so many day traders struggle? I’d argue it’s because they don’t follow solid day trading rules … like risk management or having a well-tested strategy.
Losing traders don’t work to develop skills or have a robust trading plan. They don’t use a proper trading platform or learn from other traders.
Consider joining a community like the SteadyTrade Team. That’s our elite trader education community where I mentor a group of highly driven, focused traders. I share my thoughts on the market and tactics each day. Ready to get serious? Join us!
8 Day Trading Tips You Need to Know
Day trading can seem scary when you’re first starting out.
So how can you better navigate these murky waters? Here are 8 tips from me and the StocksToTrade team…
#1 Have a Trading Plan
Jumping into the market, trading randomly, and chasing ‘hot’ stocks may seem exciting, but it’s no way to run your day trading business.
You gotta start with a detailed plan.
A good trading plan covers when and where you’ll enter a trade, which stocks you’ll trade, how you’ll manage risk, when you’ll stay out of the markets, and more.
Your trading plan has to be tailored for you — everyone’s different. Browse through the thousands of posts on this blog. You can get an idea of what will fit your lifestyle.
#2 Save up Some Capital
Does it take big money to make big profits? No!
Some of the most successful traders in the world started trading with small accounts. They focused on eduction, made good trades, and slowly grew their trading accounts.
How much should you start trading with?
I recommend that you save up capital, and invest in great tools, such as your trading platform, as well as your trading education.
#3 Paper Trade First
Did you know you can learn real trading skills from real market action, without risking a cent of your trading capital?
It’s called paper trading. You make fake trades as though you’re trading real money and document it all. Profit, loss, tactics, stocks, and more — it’s a way to watch and get a taste of the market with no financial risk.
Our StocksToTrade platform offers an awesome paper trading feature. Check it out:
#4 Keep a Day Trading Journal
Some of the world’s most successful traders track their trading performance each trading day in a trading journal.
Journaling helps you monitor your mindset, collect data, and learn from past trades.
It’s a great idea for every trader — not just beginners — to keep a trading journal.
Inside your journal, you can record the trades you make, the market action, your thoughts and predictions, and even things like your mental and emotional state.
#5 Keep Your Losses Small
There isn’t a single trader who profits on every trade.
In fact, some of the best traders have about a 50% win rate. They make money by keeping their winning trades bigger than their losing trades.
That’s why one of the most classic trading maxims tells us to ‘keep our losses small and let our profits run.’
How do you keep your losses small? There are two key ways…
First, you should only ever risk a small portion of your capital. No single trade should ever knock you out of the game or cause catastrophic damage to your account.
Second, keep your stop-losses tight, while still giving your trade some room. You can do this by studying price action on the charts and placing your stop-loss orders around key trading levels.
#6 Learn From Successful Traders
The trading journey can be so much easier when you learn trading wisdom from someone who’s already been down the path.
Personally, things started clicking for me in the markets when I studied with Tim Sykes. He taught me his style, and I used that to develop my own trading method.
I firmly believe that I shortened my learning curve by years, if not decades. All by learning from a trader who was already successful. I think you should do the same…
But when you look for your trading mentor, do your research. It’s hard to trust people in the trading industry. There are a lot of ‘trading gurus’ peddling snake oil. Find a legit trader and teacher.
If you like the way I approach the markets, join our SteadyTrade Team. That’s our elite trader education community where I share my tips, techniques, and strategies every trading day.
(And you can get to know me better first … here’s how.)
#7 Be Patient
Some of the best traders I know are chill. They don’t stress too much … Some wouldn’t be out of place hanging with a bunch of mellow surfers.
Some people are surprised to hear this — they know that trading stocks can be volatile and crazy. Sure, it’s like that for some traders…
But for smart traders who have a proven methodology, most of the process is sitting around, watching the markets until you see that juicy setup that’s ripe for the picking.
That’s how good trading should be, and it requires patience.
How do you develop patience? Some people meditate or do yoga. But personally I’m big on exercising and having interests and hobbies outside the markets. Find your market Zen.
#8 Master One Trading Setup
You can easily find more trading setups than you can manage. So how many do you really need to be a consistent trader?
One. You only need one trading setup.
When you find something that works for you, go deep. Become a master of it. Find when it works … and when it doesn’t. You don’t need to memorize every trading setup. You just gotta find the one that’s right for you.
Ready to Day Trade? StocksToTrade Can Help You
To compete as a trader in the modern markets, you need the right kind of day trading rules. Like trading plans, journals, and strategies.
You also need the right tools. Charts, scanners, news feeds, order entry — just to name a few…
What if you could have all these tools in one easy-to-use platform?
That’s StocksToTrade. It’s a premium trading and analysis platform created BY traders FOR traders.
Use the platform to scan thousands of stocks to find your exact entry criteria … Keep up with the latest news and social media buzz … Analyze stock charts … See how hot Breaking News can change your trading day … You can even let Oracle do some of the heavy lifting for you. It’s all available with StocksToTrade.
Don’t just take my word for it, see for yourself. Grab your 14-day trial of StocksToTrade for just $7 today.
The Bottom Line
A lot of potential traders get scared off when they hear about day trading rules like the PDT rule.
They often think that by being limited in the number of trades they can make, they won’t ever be able to succeed. Not true.
Plenty of traders start out with a small account and go on to have stellar careers.
If you’re just starting out, don’t worry too much about taking lots of trades. Instead, focus on taking only the best trading setups, and follow the steps in this guide to hone your skills.
Want to kick things up a notch? Join a trading community of traders dedicated to smarter trading. Join the SteadyTrade Team, where I teach some of the most driven traders everything I know about the markets…
Day trading rules like the PDT can be annoying for some traders, but what do you think? Are they good or bad? Tell me below!