You know how much I love trading, but there are two things I absolutely hate about the rules and regulations of trading.
The first is volatility halts…
They stop the momentum in a stock’s price action and they can be scary, especially for new traders, because you’re left stuck in a trade.
That’s why I suggest using the 9:45 am Rule because most halts, not all, happen within the first 15 minutes of the market open.
To learn more about volatility halts, check out my blog post about them.
The second thing I really hate is the Pattern Day Trader (PDT) Rule, and as I said during my Live Double Down webinar yesterday, “…they’re one of the dumbest things in the history of dumb government decisions.”
I also know that when I’m elected to Congress, I will work to abolish both volatility halts and the PDT Rule…
(More on my future run for Congress at another time.)
But if you’re interested in my Double Down webinar, it’s part of my Daily Income Trader System.
As a DIT subscriber, you’ll get five daily webinars, my weekly Squeeze Report, access to our proprietary trading tools, including Oracle, and much more…
Check out my Daily Income Trader System here.
And since the PDT rule is here to stay for the time being, let me explain what it is and how it might affect you…
So let’s talk about the Pattern Day Trader (PDT) Rule, a topic that stirs up a lot of confusion and frustration for traders, including me.
Table of Contents
What Is the Pattern Day Trader Rule?
For those who aren’t familiar with it, the PDT Rule applies if you have less than $25,000 in your margin trading account.
And the rule only applies to day trades, which are purchases and sales within the same trading day.
Under PDT, you’re limited to three day trades within a rolling five-day period. Once you make four or more trades, you’ll get flagged by your broker as a PDT.
And this is where things get tricky for new traders.
A lot of people mistakenly think those three trades reset on a Monday-to-Friday calendar week. That’s not the case and not understanding this can really mess you up in your trading.
How Does It Actually Work?
The PDT rule works on a rolling five-day period, not a calendar week. For example, if you use all three day trades on Monday, you won’t get another one until the following Monday.
But here’s the crazy part—when Monday rolls around, you only get back the first trade you used.
The others come back one at a time as their respective five-day windows expire. Think of it like a set of playing cards.
So if you’re not careful, you could find yourself stuck and unable to take advantage of a great opportunity or, worse, unable to manage your risk in a volatile position.
Why This Rule Matters
This rule can be a huge trouble-maker for traders trading volatile stocks—the kind of fast-moving, low-priced plays we all love.
If you break PDT, your broker might flag your account and even block you from exiting a position.
Imagine this awful scenario: you’re holding a stock that’s up around 300%, and it starts pulling back. You want out, but your broker locks you out of your account because you exceeded your three trades. Suddenly, that winning trade becomes a big loser, fast.
And if you’re short selling, it’s even worse…
Picture yourself in a short trade that keeps moving higher and higher (remember, short positions have no downside limit).
Unfortunately, you exceeded the PDT rule, and now you can’t exit your trade. This is a nightmare that can blow up your account really fast.
How to Avoid the Worst-Case Scenario
The bottom line is that you need to know your day trade count.
Most brokers display this info, so check it daily.
And even better, track it in your trading journal. Make it a habit, just like you’d track your setups or review your trades.
Don’t forget this: if you break PDT—even accidentally—some brokers will lock your account for 90 days…
That’s three months on the sidelines, unable to trade, all because of one little mistake.
Are you still wondering why I hate the PDT Rule??
My Final Thoughts…
If you can remember one thing about the PDT Rule, it’s this: it operates on a rolling five-day period, not a calendar week.
Write that down. Tattoo it on your hand…whatever. And always, always keep track of your day trade count.
And if day trading doesn’t interest you, maybe swing trading is more your speed.
It’s the sweet spot between day trading and long-term investing.
While you don’t have to be glued to your computer all day, you also don’t have to wait years for a buy-and-hold position to make a decent return.
Best of all, you avoid being subject to the PDT Rule!
If swing trading is your cup of tea, check out IRIS, the AI bot I designed exclusively for swing traders.
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The tool operates much like ChatGPT to produce screeners, trading plans, and more.
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And for additional trading mentorship on day and swing trading, stock ideas, and more, join my StocksToTrade Advisory service.
Every STT Advisory member gets a monthly newsletter with a list of my top picks, three weekly videos with my watchlists, bonus reports, and more.
Sign up for StocksToTrade Advisory right here!
Have a great day, everyone. See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade