Get ready, because for this episode, Stephen Johnson is taking the reins. The subject of discourse? Something that Stephen recently overcame: the Pattern Day Trader Rule
The PDT (the Pattern Day Trader rule) is a thorn in the side of many new traders. In the episode, Stephen will share his path to reaching a major trading milestone. Throughout the episode and interwoven with his personal story, he and co-host Tim Bohen will impart invaluable tips for how you, too, can overcome the PDT.
What is the PDT? While new traders will undoubtedly be all too familiar with the PDT, if you’re just in the research stages, you may not have heard the term yet. PDT stands for the Pattern Day Trader rule.
The PDT was originally put into place following the dot-com bubble; during this time, many people were day trading furiously, and when the bubble burst, many lost a lot of money. The governing bodies decided to set up certain limitations to protect traders with small accounts. What classifies as a “small account” is arguably quite large: if you have less than $25,000 in your account, you’re subject to various rules that limit how many trades can be executed and with what frequency.
Is the PDT a good thing? Yes and no. While Stephen seems staunchly against the PDT, Tim takes a gentler stance, noting that it is well-intentioned, but imperfect. In the episode, you’ll learn a little bit more about the specifics of the PDT, including the limitations and how sometimes they aren’t always a good thing.
How to party your way over the PDT. Are you ready for a dance party with Stephen? If you can power through his very frightening singing voice, you’ll learn a lot about how to break through the PDT barrier as a trader.
Stage 1: Getting started. To newbies, trading can seem like the wild west. Most traders are getting started with what Tim and Stephen (not the government) label a “small account”–anywhere from zero dollars to about $5,000. With an account like this, it’s very difficult to sell short, which can limit your range as a trader.
Tim and Stephen address important considerations as you build your fledgling account, including the “$2.50 rule” and margin calls. They also talk about ways to get around PDT rules, addressing the pros and cons of such tactics.
Stage 2: Moving forward. Welcome to the jungle! This is where traders go from $5,000 to $25,000. It might seem like a big range but really, this is where most traders are working. It’s within these ranges that you really start to spread your wings and see what you can do.
Tim and Stephen discuss how to strike balance with buying and selling as your account position increases. You may have a higher balance to short, but you still have necessary growth. This is when you really start to figure out the setups that work for you.
Ultimately, the lesson to be taken here is that to get ahead, you need to be a professional profit taker. As Tim says, you have to take the stance of “I take profits for a living. I don’t care if it’s 50, 20, or 200 bucks”. Both Tim and Stephen offer specific tips on how to grow your account with good, solid trades.
Stage 3: Party time! So, now that you’re standing atop the mountain that is the PDT…now what? Unfortunately, it doesn’t mean that you can just do whatever you want. Now, more than ever, it’s important to be careful and methodical in your trading. Once you feel invincible, that’s often when you make mistakes and the bottom falls out (along with your trading/PDT status).
In the episode, Tim and Stephen offer several practical tips for how to keep your cool and stay on track. Of course, they also offer some anecdotal tips for how they like to take a breather from the sometimes pressure-filled world of trading at a high level: while Tim likes to read a book or work, Stephen insists that “Alcohol and Tinder make me a better trader.” To each his own!
Thanks for tuning in to the new, serial format for the Steady Trade Podcast! Stay tuned for weekly episodes covering every aspect of how to be a steady trader with long-term, reliable success!
Did you love this episode? Be sure to leave an iTunes review!