The Pattern Day Trader | Podcast Episode #155

0:18
Hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market. And I got a good episode for you guys today from a person asking about avoiding the pattern day trader status. How do you avoid PDT? For those of you who don’t know what PDT is, it’s a designation that’s given to you by the SEC.

0:39
When you make more than 4 or more day trades within the span of 5 business days using a margin account. And of course, those trades have to constitute more than 6% of the margin accounts, total trade activity during that 5 day period. So if you become a pattern day trader or PDT brokers is gonna keep you from being able to close out your trades the same day that you make them.

1:03
They’re just gonna basically stop you from Being a day trader. I don’t agree with it. I think it’s stupid. I think people should be allowed to do with their money, what they want. But yeah, it’s another government overreach of saying, hey, we are worried about the little guy and we want to put more restrictions on him and make the playing field more unfair.

1:22
So we’re gonna come up with this fancy thing called a pattern day trader. Now I wouldn’t be surprised if half the people that made up the rule had never made a day trade in their life. Nonetheless. It’s an issue whether you like it or not, that you have to deal with as a trader. So I’m gonna call this guy Willie.

1:40
Willie’s gonna be my redneck name for this email. And the bourbon of choice is Jefferson’s Reserve, very old Kentucky Straight bourbon whiskey, very small batch.

1:57
It’s 45.1%. It’s 45.1% alcohol, 90.2% proof. I’ve heard a lot of good things about this. When I put it up to my nose, it has a really nice cinnamon flavor.

2:14
I like that a lot. It’s very smooth. And then when I taste it, it’s still smooth, very smooth. It has a little bit of heat, not too much. It’s not gonna overwhelm you at all, little bit of heat, but it’s got a little bit of a honey flavor and then As it comes into the finish there, a nice little vanilla taste. So I like it.

2:29
It’s got a nice balance of, of smoothness and heat. Neither one is too overwhelming. On a scale of 0 to 10, I’m gonna give it about a 78. I don’t think it’s the I don’t think it has as much depth as I would like.

2:45
But overall, it is a really. But overall, it’s still a very good bourbon. The one that I, I, I definitely want to keep stocked on my shelf. 78. So a 7.8 So a 7.8 for Jefferson’s reserve, very small batch.

3:06
There’s a whole bunch of other ones out there. Here’s the other funny thing too, uh just on a side note. I read what some of these other people think about some of these bourbons that I drink, and I’m just kind of curious sometimes to see, OK, do we share some of the same opinions or am I just like way out there in left field, right?

3:22
Because I mean, I’m not like a bourbon expert. I’m a guy like most of you just pick up a bottle and I drank it and I’ve started to pick up on some of the notes that are in it. I don’t, but, but, but I see some of these people and it’s hilarious because they’re like, yeah, I can taste the deer, you know, dancing in the.

3:39
Clover fields and I can take. I can taste The burned down distillery from 200 years ago that happened to be on that property that they’ve replaced it now with a new distillery.

3:56
I mean, it’s like crazy like some of the things they say they could pick up. I mean, I’m exaggerating a little bit here, but I, I think some of the folks just make up stuff as they go along. I could be wrong. Maybe as I continue to drink bourbon into my later years, I’ll pick up on some of that crazy stuff. But nonetheless, I picked up the cinnamon, I picked up the vanilla on Jefferson Reserve.

4:15
On Jefferson’s reserve, and I thought it was pretty good. All right, so let’s get to this email here. Dear Ryan, my name is Willie.

4:32
Looking forward to the name that you give me in this podcast, if I Dear Ryan, my name is Willie. Looking forward to the name you give me if this is on your podcast. Well, I gave you the name Willie. First, I want to start by saying I absolutely love the podcast.

4:47
I just started listening this past week and I finished almost every episode so far. That’s, that might be competing for a record. I mean, you’re talking about like 153 episodes at this point. Guy’s gone through them. All in one week. Um, I think there may be some competition for you, but this guy, this guy is in the upper echelon in terms of blasting right through these things.

5:08
He says, I currently work at Graveyard shift and I put my earbuds in and always listen all night, and it’s my favorite podcast by far. I’m a big whiskey bourbon guy, so please continue to do that. So please continue. So please continue that so I can get new drink ideas.

5:27
Anyways, I start trading. Anyways, I started trading mid-January. I only put $200 into my account and so far I’m up 125%. But I realized I was being way too risky and just following the crowd.

5:43
My first stock I bought into was CCIV at $20 which I got really lucky and scaled out of my position and got out before it ever dropped. And got out before it dropped after the merger was announced, but I had no risk management whatsoever. Although I made some really good profit, I knew that I was still.

6:03
Although I made some really good profit, I know that I was still. In a bad trade. Since then, I’ve been focusing on learning as much as I can to become a successful trader and be consistent rather than following people on social media. Sadly, I’m a Robin Hood bro.

6:20
Uh oh. But I also have a Weibo account that I plan on transferring my funds over to. Now, look, being a Robin Hood, bro. It’s a state of mind. It’s not just about the application that you trade out.

6:36
It’s not just about the application that you’re trading off of. So keep that in mind. If you act like a Robin Hood, bro, you smell like a Robin Hood, bro, you’re probably a Robin Hood bro. I’m curious how you feel about the Weibo platform.

6:54
Really, in the end, the, the, the, the traitor is what’s going to. In the end, it’s about the trader, it’s about the mindset. It’s about the strategy and the approach to trading. No brokerage account has ever made a person rich simply because they’re using that brokerage account.

7:09
So, Weibo, I mean, there’s a lot of people using it. I’ve never used it before. Taking a flyer on it, I’m gonna say it’s probably similar or somewhat similar to the Robin Hood. Platform. I personally use Think or Swim. I like Fidelity.

7:25
Um, I have a couple of others, but those are the two main ones that I like the most. He, he also says, how do you feel with the PDT rules when you have a small account and want to use stop losses? I’m worried I could get stopped out more than 3 times in the same day of making a trade.

7:43
Again, I want to thank you for everything you do on the podcast and for not sugarcoating anything. You have amazing advice and I always look forward to your insights. I don’t have many questions as of right now, since most of them were answered on the previous podcast, but I hope that you can still use this email on an episode. Thank you for helping people like me become better traders.

8:00
And, or if you were to use this email, I hope you have one of your famous old fashion for me. I definitely will. I might have already had one tonight. So Here’s the thing. He doesn’t think that he’s asking a lot of questions. He actually is.

8:16
I’m gonna dig into the CCIV trade without having to throw up a chart for you guys or requiring you guys to look at a chart. That’s one of the things I try to do on the podcast is not make it visually necessary to be looking at your charts. So he talked about, he got into CCIV, he got in at 20.

8:32
He’s built his account up to 125%, largely trading stocks like CCIV. He got out before the big drop on the merger news. Here’s the thing, he got in at 20. First of all, If you’re gonna be wrong on the trade, and it’s going to put you in a big hole for being wrong, You don’t want to trade that stock.

8:55
CCIV was a huge crowd favorite and it put a lot of people in the hole. Luckily, if you’re trading with $200 in an account and you’re wrong, It’s not going to kill you long term. You can make that money up. I mean, Pete’s sakes, we got like people getting $1400 here in the next couple of weeks off of the stimulus plan, right?

9:13
I mean, we’ve been getting. I mean, they’ve been handing stimulus checks out for a long time, PPP, so I mean, $200 you can come back from.

9:34
But I believe, regardless if you’re trading a big account or a small account, you need to be trading it. With a strong understanding of what risk is in the stock market and about managing that risk. I say this every podcast. In fact, almost all my podcasts centers around the theme of managing the risk.

9:52
Now, He got kind of lucky here. He got out before that big sell-off. But what if he didn’t? What if he said, OK, one more day and then that big sell-off happened, and now he, he lost all the profits that he had. He would have had a horrible trade.

10:10
But the horrible trade started when he first made the trade and didn’t have a plan or method of securing profits along the way. Let’s just say for the sake of argument. CCIV was a worthwhile. Trade to make from a risk standpoint.

10:27
You get in, you get in at 20. You should be booking profits along the way. When this thing goes from 20 to 35, 35, that’s an easy marker right there to go ahead and get out of the trade. 13 off the table, 75% you just made off of 1/3 of your position. Goes up to 40%.

10:44
Take another. 1/3 of a position off. You just made 100%. So 2/3 of your position. You’ve made 87.5%. You still got 13 to let run wild.

11:00
And so what I like to do when I let the stock run wild, I like to move up that stop loss and let it stop out at some point. This one is the easy stop loss at $55 which would have given you 175% on that trade. That means all three positions together gave you a 117% trade.

11:19
A 117% return on that trade. So the question is, what more do you want out of your trade? You get into a trade, you make 117%, you take that all day long. You manage the risk like I talked to you about. I know CCIV is not the best example to do that with.

11:36
But what I’m worried about with here with Willie is that he was getting into this trade and he’s like saying, hey, how high can this thing go? And that’s not the take that you wanna have on any trade that you make. Look, these facts like CCIV, these things are gonna get destroyed.

11:54
They are going. To be a footnote in history when this whole bubble explodes on itself. There are shell companies that are as worthless as these dot-coms that were popping up in the late 90s that eventually led to an 87% decline in the NASDAQ.

12:15
Now, I can’t say whether or not the NASDAQ’s gonna have a similar decline this time around, but I can tell you this bubble is way bigger. than anything we saw in the 90s. Maybe it’s a 50% pullback, but there’s gonna be blood in the streets. There’s a 50%, there’ll be blood in the streets that there’s a 30% pullback, OK?

12:38
But my word of advice, when you start thinking about CCIV and these trades that you’re getting into, whether they’re GameStop or AMC and you start thinking to yourself, how rich might I get off of this tree, you’re already in trouble, guys, because when you start thinking about how rich you can get off this trade, you’re putting in expectations that is extremely, extremely unlikely.

13:04
To be fulfilled by the market. And, and what’s the shame? And what a shame it is, is that the media keeps propping up Rory, roaring, that the media keeps propping up this roaring kitty. I think that’s his name, Roaring Kitty. On all of its media sites, right?

13:21
All the business pages, they talk about this guy, the guy that put like $50,000 in the GameStop and he had that thing up into the 20s and $30 million dollar range of profits that he made. People see this stuff it’s like, man, I gotta get into the stock market. It’s like a lot of people that get into YouTube, right? I have a YouTube channel.

13:38
I cannot tell you how much effort goes into making a YouTube video. And most people think, oh, I’ll just take a video of myself, record it on my phone, upload it to YouTube. And everything will be great. No, the videos that you see of me on YouTube, it’s about 30 minutes of recording.

13:56
Which is scaled down to about a 10. To scale it down to about a 10 minute video in about 3 to 4 hours of nonstop editing. Uh, just to get you that one video of 10 minutes. Let me tell you People look at Roaring Kitty the same way.

14:13
It’s like, oh man, I could just place a trade on GameStop and get rich. Man, people were taking $20,000 loans. They were getting student loans. They were taking cash advances out of their credit cards. And they were putting it on the stock. There’s this guy out there, the first go around, he puts He gets $20,000 in student loans and he buys GameStop with it.

14:36
And now it goes all the way down to like 30 $40. And of course, right now it’s up over $240 here in early March. And I would not be surprised if that guy was still in the trade, hoping to get rich again, even though he almost wiped himself out with a stupid, stupid trade.

14:56
Guys, this is no way to trade. When you’re trying to get into a trade and you’re thinking how much, and you’re thinking, how rich might I get if it goes all the way up to here, you’re already in trouble on the trade, guys, and you don’t even know it yet. And that’s the thing, whether it’s CCIV or AMC GameStop.

15:14
BlackBerry Guys, you gotta control the risk. And if you can’t control the risk, you don’t get in the trade. Game stops up at $240 today. Let’s say it doesn’t gap down to $180 tomorrow and then what? You just lost 25%. Before the market even opened.

15:39
Instead, what you should be doing. is being a part of something like swingtradingthestockmarket.com, where you get all of my market research. You’re gonna get my watchlist that I update multiple times each week. My master watchlist, both bullish and Bear stocks. So if you’re in the shorting or if you’re in the long setups, you’re gonna know which stocks I’m bullish on, which stocks that I’m bearish on.

15:59
And then each morning, I’m sending out my daily setups from that watch lists and some others that I might find along the way, and I’m providing you with a daily watch list of stocks to watch each and every morning. And I’m gonna give you my favorite charts that I come across every day, and You’re gonna get multiple market updates, as well as updates on all the Fang stocks plus Microsoft and plus Tesla.

16:24
So check that out, swingtradingthestockmarket.com. Now that I’m done with my little plug there, you see how I segue that into the conversation about CCIV? Now, let’s get into pattern day trading because a lot of you guys have to deal with this.

16:43
Now, if I’m gonna be brutally honest with you guys, and that’s what I try to do with you in this podcast. I try to show some Wisdom and love to you guys. I try to share with you the experiences as a trader that, yeah, I’ve, I’ve been affected years ago by the pattern day trader status, you know, when I was first starting off, yeah, that was a thing for me.

17:03
I didn’t like it. In fact, I was like freaked out the first time it happened. Nobody told me what that crap was. I thought the, I thought the Fed was gonna like knock down my door, actually my office door because I was trading when I was supposed to be working.

17:19
Nonetheless. It shouldn’t be a concern for you as a trader. And that might sound a little bit shocking when I say that. If you’re trading with less than a $25,000 account, pattern day trading should not be a problem for you. And the reason why is because you should be managing the risk.

17:37
You should not be getting into these crazy freaking stocks like CCIV or GME that are gonna put you in a position to have the day trade. If you’re gonna trade a stock that’s going to put you in that kind of a position, it’s the wrong trade to be making.

17:57
And here’s the other thing again, and I’ll get emails off of this. I’ll just. Get ahead of it right now. I’m gonna get emails that says, oh, Ryan, you’re so wrong about. Day trading with less than $25,000 in your account or trading GME or CCIV I just made. 50% on that trade or I just made 100% on the trade.

18:14
Who cares? Seriously, who cares? I don’t give a rip. I don’t judge a trader by that kind of stuff. That’s one trade. More than likely, it’s gonna embolden you to take a really stupid trade next time and you’re gonna blow it all on that one.

18:32
So, look, anybody can make profits in the stock market. It’s about maintaining those profits and building on those profits that I try to emphasize on this podcast. And why do you want to be day trading?

18:49
You know, most of the gains that happen in the stock market happen overnight. Yeah, we, we have most of the gains that happen over the night. Yeah, most of your gains are going to happen overnight. It’s not during the trading session. Markets closed. 17.5 hours a day and it’s open 6.5 hours a day.

19:06
So there’s 17.5 hours while the markets closed, where things happen, where things are getting priced into futures. That are reflected in the opening price of the S&P 500 and the Russell, and the Nasdaq. And all the stocks that correspond with it.

19:26
Earnings, that’s after hours. That’s something you actually wanna avoid, not trade through. Indeed, trading is gonna put too much pressure on you. To do well. And so if you’re putting yourself in situations where you’re thinking, OK, there’s a good chance that I’m gonna have to day trade this stock.

19:48
Don’t trade it. If you have less than $25,000 why would you put yourself in that situation? As a trader with less than $25,000 in your account, or even more than that. The way I see it is a day trading should be used in the case of emergency. If you’re having more than 3 emergencies in a week. You might want to re-evaluate your approach to trading.

20:13
Because day trading, even though you’re not getting charged for commissions, it often leads even more so now that you’re not being charged for commissions. It’s gonna lead to over trading. You’re gonna be revenge trading, you’re gonna get into that FOMO where it’s like, oh man, look at this stock running. I gotta get into it because everybody else is getting into it and I don’t want somebody else to get a gain that I’m not being a part of.

20:31
So too often it becomes very risky and very emotional. So if you’re gonna be good in the stock market, and I feel like if you’re listening to this podcast, you ultimately want to be a good trader in the stock market. It doesn’t need to be with day trading. In fact, I would highly suggest that it does, in fact, I can’t emphasize enough.

20:52
How smart it would be to just focus on swing trading. To this day, that’s what I do is swing trading. I have no desire to do day trading. And again, kind of like what I emphasized earlier, you know, small accounts, people are thinking, OK, well, if I lose the $200 whatever, I, I’ll come back from it.

21:13
And that’s true. You’ll come back from it, OK? If you have a work ethic, you’ll come back from it. But you should be treating your small accounts. Like their large accounts. You should be trying to manage the risk all the same because that’s gonna develop healthy habits when you do have more money that you’re trading with.

21:33
If you want to be able to do well with a lot, you better start learning how to do a lot. You better start learning how to do well with a little. And just because you might be getting a stimmy check in here in the not too distant future, don’t be blowing that with day trading.

21:50
Don’t be yellowing that stuff on these crazy stocks out there from Wall Street bets and others. You want to do it right, swing trade, manage the risk. Don’t go into these crazy stocks that are gonna force you to become a pattern day trader or You think there’s a high probability you’re gonna have to get out the same day that you get in?

22:13
Yeah, there’s sometimes where I, I day trade. Sometimes I get into a stock and it’ll go 10% after I get into it and I’m saying, OK, I’m gonna take a third off the table. Now, If I’m trading with less than $25,000 in my account, then I’m going to get a, a ding against me. But that doesn’t happen every day.

22:28
And that’s not really what I went into the trade, expecting it to go up 10% that day. But if I followed, but if I fell underneath that category. But I But if I fell in that category, yeah, I, I would take one, but I’m not probably gonna be doing that 3 times in one week.

22:44
If I do, heck, that’ll be great, but, but uh no, it’s not. And if I do, I might be swinging a little bit too high. I might be swinging too much for the fences there, OK? So you really wanna make sure. That you’re trading stocks that you envision, OK, this is going to be a stock that’s gonna play out.

23:05
Over the next couple of weeks or a month or so, that’s swing trading. Do it right or with your small accounts, they’re gonna be gone. And whether it’s $100 that you’re trading with or $10,000 that you’re trading with. We don’t want our accounts to go away. Remember the episode, if you haven’t listened to it yet, go back and listen to it and if you still don’t get it, listen to it again about don’t trade like a serial killer, because that’s what a lot of you guys are doing right now.

23:30
Or have done Where you’re buying a lot of these stocks. You’re making big gains and you’re just rolling it into the next big gamble. And yes, you may get 3 or 4 of them right. Heck, who knows? Maybe you get 10 of them right and you’re making some good coin, but it’s gonna embolden you to keep taking bigger and bigger risks until you finally get caught like the serial killer and you’re gonna get destroyed in the stock market.

23:51
So don’t trade like the serial killer, guys. All right. That’s gonna do it for today. If you have any questions. That’s gonna do it for this episode. If you have any questions, please. Please email me. I’d love to hear from you guys. I, I thrive off of your emails.

24:06
I try to get as many of these things on the air as I possibly can. ryan@shareplanner.com. And please, if you can, And While I’m thinking about it, make sure to leave a five-star review for me on Apple or whatever platform it is that you listen to.

24:25
That’s like gold in the podcast world. I really need those. It helps me to continue to build my reach in the trading and investing world. Thank you guys, and God bless.