Pattern Day Traders

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The required minimum equity must be in the account prior to any day-trading activities. The rules permit a pattern day trader to trade up to four times the maintenance margin excess in the account as of the close of day trading patterns of the previous day trading patterns.

If a day trading patterns day trader exceeds the day-trading buying power limitation, the firm will issue a day-trading margin call to the pattern day trader. The pattern day trader will then have, at most, five business days to deposit funds to meet this day-trading margin call. Until the margin call is met, the day-trading account will be restricted to day-trading buying power of only two times maintenance margin excess based on the customer's daily total trading commitment.

If the day-trading margin call is not met by the fifth business day, the account will be further restricted to trading only on a cash available basis for 90 days or until the call is met. In addition, the rules require that any funds used to meet the day-trading minimum equity requirement or to meet any day-trading margin calls remain in the pattern day trader's account for two business days following the close of business on any day when the deposit is required.

The rules also prohibit the use of cross-guarantees to meet any of the day-trading margin requirements. The primary purpose of the day-trading day trading patterns rules is day trading patterns require that certain levels of equity be deposited and maintained in day-trading accounts, and that these levels be sufficient to support the risks day trading patterns with day-trading activities.

Day trading patterns was determined that the prior day-trading margin rules did not adequately address the risks inherent in certain patterns of day trading and had encouraged practices, such as the use of cross-guarantees, that did not require customers to demonstrate actual financial ability to engage in day trading. Most margin requirements are calculated based on a customer's securities positions at the end of the trading day.

A customer who only day trades does not have a security position at the end of the day upon which a margin calculation would otherwise result in a margin call. Nevertheless, the same customer has generated financial risk throughout the day. The day-trading margin rules address this risk day trading patterns imposing a margin requirement for day trading that is calculated based on a day trader's largest open position in dollars during the day, rather than on his or her open positions at the end of the day.

The SEC received over comment letters in response to the publication of these rule changes. Day trading refers to buying then selling or selling short day trading patterns buying the same security on the same day.

Just purchasing a security, without selling it later that same day, would not be considered a day trade. As with current margin rules, all short sales must be done in a margin account.

If you sell day trading patterns and then buy to cover on the same day, it is considered a day trade. Your brokerage firm also may designate you as a pattern day trader if it knows or has a reasonable basis to believe that you are a pattern day trader.

For example, if the firm provided day-trading training to you before opening your account, it could designate you as a pattern day trader. Would I still be considered a pattern day trader if Day trading patterns engage in four or more day trades in one week, then refrain from day trading the next week?

In general, once your account has been coded as a pattern day trader, the firm will continue to regard you as a pattern day trader even if you do not day trade for a five-day period.

This is because the firm will have a "reasonable day trading patterns that you are a pattern day trader based day trading patterns your prior trading activities. However, we understand day trading patterns you may change your trading strategy. You should contact your firm if you have decided to reduce or cease your day trading patterns trading activities to discuss the appropriate coding of your account.

This collateral could be sold out if the securities declined substantially in value day trading patterns were subject to a margin call. The typical day trader, however, day trading patterns flat at the end of the day i. Therefore, there is no collateral for the brokerage firm to sell out to meet margin requirements and collateral must be obtained by other means.

Accordingly, the higher minimum equity requirement for day trading provides the brokerage firm a cushion to meet any deficiencies in the account resulting from day trading.

The credit arrangements for day-trading margin accounts involve two parties -- the brokerage firm processing the trades and the customer. The brokerage firm is the lender and the customer is the borrower. No, you can't use a cross-guarantee to meet any of the day-trading margin requirements. Each day-trading account is required to meet the minimum equity requirement independently, using only the financial resources available in the account.

What happens if the equity in my account falls below the minimum equity requirement? I'm always flat at the end of the day. Why do I have to fund my account at all? Why can't I just trade stocks, have the brokerage firm mail me a day trading patterns for my profits or, if I lose money, I'll mail the firm a check for my losses?

It is saying you should be able to trade solely on the firm's money without putting up any of your own funds. This type of activity is prohibited, as it would put your firm and indeed day trading patterns U. The money must be in the brokerage account because that is where the trading and risk is occurring.

These funds are required to support the risks associated with day-trading activities. You can trade up to four times your maintenance margin excess as of the close of business of the previous day. You should contact your brokerage firm to obtain more information on whether it imposes more stringent margin requirements.

If you exceed your day-trading buying power limitations, your brokerage firm will issue a day-trading margin call to you. Until the day trading patterns call is met, your day-trading account will be restricted to day-trading buying power of only two times maintenance margin excess based on your daily total trading commitment.

Day trading in a cash account is generally prohibited. Day day trading patterns can occur in a cash account only to the extent the trades do not violate the free-riding prohibition of Federal Reserve Board's Regulation T. In general, failing to pay for a security before you sell the security in a cash account violates the free-riding prohibition. If you free-ride, your broker is required to place a day freeze on the account. No, the rule applies to all day trades, whether you use leverage margin or not.

For example, many options contracts require that you pay for the option in full. As such, there is no leverage used to purchase the options. Nonetheless, if you engage in numerous options transactions during the day you are still subject to intra-day risk. You may not be able to realize the profit on the transaction that you had hoped for and may indeed incur substantial loss due to day trading patterns pattern of day-trading options.

Again, the day-trading margin rule is designed to require that funds be in the account where the trading and risk is occurring. Can I withdraw funds that I use to meet the minimum equity requirement or day-trading margin call immediately after they are deposited? No, any funds used to meet the day-trading minimum equity requirement or to meet any day-trading margin calls must remain day trading patterns your account for two business days following the close of business on any day when the deposit is required.

Frequently Asked Questions Why the change? Were investors given an opportunity to comment on the rules? Definitions What is a day trade? Does the rule affect short sales? Does the rule apply to day-trading options? The day-trading margin rule applies to day trading in any security, including day trading patterns. What is a pattern day trader? Day-Trading Minimum Equity Requirement What is the minimum equity requirement for a pattern day trader? Can I cross-guarantee my accounts to meet the minimum equity requirement?

Buying Power Day trading patterns is my day-trading buying power under the rules? Margin Calls What if I exceed my day-trading buying power? Accounts Does this rule change apply to cash accounts?

Does this rule apply only if I use leverage?

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On this page you'll find a short introduction to some of the most important chart patterns every trader needs to know. Technical analysis is the study of market action primarily through the use of charts, for the purpose of forecasting future price trends.

It assumes three things: Market action discounts everything. Price moves in trends. The following patterns are the most recognized and followed. We actively follow and call them all in our Live Trading Room. Wide range bar breaking out of support. Often this narrow range bar is also an inside range bar. Switch to a smaller time frame and take a breakout from the base or use above the highs of the narrow range bar of bar 2. Under the lows of the base or last major pivot low on the smaller time frame, under the lows of the narrow range bar, or under the lows of the third bar at the time of the setup.

A high followed by a slightly higher high. As the high of the first high breaks on a pullback from the second high. Alternate entry used by Toni: Under the prior bar's lows after the second high is made. The only time it is not under the bar that made the second high is if that high is followed by an inside range bar, so you would use a break in the lows of the inside range bar. Over the second high. Price or moving average support.

Breakout from the trend lines on higher then average volume as the trend lines converge. Under the lows of the base or last major pivot low on the smaller time frame or under the lows of the setup bar. Equal distance on a breakout comparable to the distance between the first high and first low in the triangle. Ascending triangles tend to breakout higher. Stronger than average rally. Pullback of bars comparable to or stronger than previous rally, usually on increasing volume, to moving average support typically the 10, 20 or 30 sma.

Hugs the moving average support on decreasing volume. Moving averages start to converge 10 and 20 sma if it's setting up on the 20 sma. Switch to smaller time frame and enter on a breakdown in support or going into resistance. Over previous or current day's highs. Usually you will use current day's highs or intraday resistance. Next major simple moving average. Gentle pullback to resistance, such as the 20 sma, on decreasing volume. Below the previous bar's lows or using an intraday breakdown such as a break in the uptrend line of the flag.

Volume should start to pick up at this time to confirm the setup. Above the previous bar's highs or above intraday resistance. New lows, usually on high volume. A breakout in the most recent section of the trading range or trend line in the direction of the trend prior to the trading range. Can also take an entry into moving average support in the case of a long and sma resistance in the case of a short. Under simple moving average support such as the 15 minute 20 sma in the case of a setup on the 15 minute chart or under the last pivot low within the trading range.

Moving average resistance like the 15 minute sma , price resistance such as a previous pivot , or an equal move to that before the trading range on the move out of the trading range.

Gentle pullback to support, such as the 10 or 20 sma, on decreasing volume. Above the previous bar's highs or using an intraday breakout such as a break in the downtrend line of the flag. Below the previous bar's highs or below intraday resistance. A bullish daily pattern. Preferably where the market opens at lows and closes at highs.

A gap down in the morning, generally on news, whereby the stock opens at or under the previous day's lows. Break in 5 minute lows A or an intraday setups such as a breakdown out of a base at lows B or a bear flag. Depending on the objective and entry. On a break in 5 minute lows for a day or swingtrade you can use above the 5 minute highs.

For intraday breakdown setups use a stop over the last bars or over significant intraday moving average resistance. The same goes for intraday bear flags. For position trades use over the high of the previous day or over the current day's highs. Gentle pullback of bars average to the simple moving average zone on decreasing volume. Above the previous bar's highs or using an intraday breakout.

Volume should pick up at this time to confirm the setup. Under the previous bar's lows or under intraday support. Gentle pullback of bars average to the simple moving average resistance zone on decreasing volume.

Below the previous bar's lows or using an intraday breakdown. A type of Phoenix. A stock coming out of a downtrend with rounded lows that puts in a slightly lower high and then pulls back gradually to put in a higher low. On a breakout higher out of the pullback.

There will often be a moving average crossover such as a cross in the 10 and 20 sma Stop: Under lows of the pullback. Highs of the beginning of the cup or an equal move out of pullback as compared to move off lows. High left shoulder followed by a higher high head and then a lower high right shoulder which is comparable to the left shoulder. Breakdown from the neckline. The neckline connects the lows on either side of the head. Alternative and preferred entry is using a bear flag breakdown to enter after the right shoulder has formed.

Over the past pivot high or 20 simple moving average resistance Target: Previous reversal prices and support zones such as a 5 minute sma if the setup occurs on the 15 minute chart. Wide range bar on increased volume preferably at a strong support level Entry: Above 5 minute high on a gap up or an intraday breakout to highs. Under current or previous day's lows Target: Pullback higher of bars comparable to or stronger than previous decline, usually off lows on high volume, to 20 simple moving average resistance 3.

Under previous or current day's lows on a daily setup. Usually I will use current day's lows or a break in intraday support. For example, a setup on the 2 minute chart has a target of 5 minute 20 sma and a setup on the 5 minute chart has a target of the 15 minute 20 sma. Also watch for equal moves. Low left shoulder followed by a lower low head and then a higher low right shoulder which is comparable to the left shoulder.

Break higher from the neckline. The neckline connects the highs on either side of the head. Alternative and preferred entry is using a Phoenix to enter after the right shoulder has formed. Under the past pivot low or 20 simple moving average support Target: Previous reversal prices and resistance zones such as a 5 minute sma if the setup occurs on the 15 minute chart.

Also whole number resistance. Lower highs and higher lows on decreasing volume. Under the lows of the base or last major pivot low on the smaller time frame or under the lows of the setup bar in the case of a buy.

Symmetrical triangles tend to resolve themselves in the direction of the overall trend. There are exceptions, mainly at strong resistance in the case of an uptrend or strong support in the case of a downtrend. This tends to be one of the more difficult patterns for trader's to learn to use successfully.

For in depth information please see my day trading ebook.