Why The Pattern Day Trader Rule Proves The SEC Rivals Osama Bin Laden In Terrorism
Posted by timothysykes on Wed 4th of Jun, 2008 01:25:35 PM
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Yup I said it. While making a nice quick 5+% American profit, or $350ish, in an hour on my LGDI trade a few weeks ago, my blood boiled over due to the missed opportunities caused by the SEC’s pattern day trading rule. And while I’ve attacked it in the past, there was no formal summary post that explained all my key points. Considering how many stocks are in play today and the fact that I am forced to ignore 99% of them, it’s time I unleash this fury.
The formal definition of this inane rule is HERE, and once you read it, you’ll begin to understand why I call it the Reign Of Terror Rule. In fact, I’ve got an entire category devoted to it as I’ve documented each and every time it’s interfered with my trading since I began TIM in November 2007.
Basically, if your trading account is below $25,000—as are the accounts of so many poor people out there—you can only day trade (meaning in and out the same day) 4 times per week. If you trade more than that, you get flagged as a pattern day trader and your account gets restricted because you’re considered evil, as most day traders are believed to be. (Yes sometimes you can trade a few more times than that—since its all rather gray area and the brokerage firms themselves despise this rule—but my point is there should be no limits whatsoever!)
Even though I’ve still got over $500,000 in liquid cash to trade with, I went back to my $12,415 roots specifically to draw attention to this injustice because most people, including industry big wigs, don’t even know about it. After all, the last time I had this little money, it hadn’t been instituted and I’m forever thankful since trading freedom allowed me to get rich.
Now, in my quest to repeat my feat of turning thousands into millions, I’m only up 50% in 7 months, thanks in large part to the obstacles created by this rule, whereas if I wasn’t chained down, it’d be more like 100-200% maybe even 300%. No joke—click that category above and see what kind of crap with which I’ve had to deal.
I know from countless blog post comments and emails from you guys—even you non-trading addicts out there—that it’s absolute hell for you too. So, in the comments section of this post, please write about any and all experiences with this rule in order for the freedom-hating SEC can better understand the problem. Sad to say, but I think the only way to get the attention of these terrorists—and that’s what they are, using this rule to attack wannabe day traders everywhere because they disapprove of our values— is if the comments section of this post surpasses the 9/11 body count, which was 2,974. But since this is about one of our great nation’s most important ideals—freedom—it’s imperative that we succeed and show these terrorists what we’re really made of!
Please be honest—thanks to all the easy money that causes us to act like immature pricks (see EliteTrader.com and my inappropriate terrorist comments (although this is what it’s gonna take to get people’s attention….sadly)), we day traders already have a bad enough reputation.
Here, I’ll start—See some examples of what I’m talking about HERE, HERE, HERE, HERE and HERE and that’s all just in the last few weeks! Feel free to refer to problem # in your comments if you have similar experiences/thoughts:
Problem #1: Like limiting a painter to a certain number of brushstrokes
Day trading is all about trial and error—it’s best to test out the waters with small positions, scaling in and out depending on the price action. When I’m limited to one position per day—at most—I’m forced to be perfect in my timing, which not only is incredibly difficult, if not impossible, but because I’m trading smallcaps and microcaps, this rule has made this game more dangerous than it has to be. Like painting, trading is an art—can you imagine a rule where an artist was limited to 1 brushstroke/day? The painting not only would take forever but it would suck! This is wrong. I am most profitable when I can scale in and out easily, cut my losses quickly and re-enter when the price action is more to my liking.
Problem #2: Hurts Profit Potential
Since microcaps and smallcaps are somewhat illiquid, worthy trading opportunities come about only so often and when they do, they usually come in bunches. Thanks to this injustice, I often find myself unable to trade all the worthy opportunities out there, hurting my profit potential.
Problem #3: It’s Gosh Darn Un-American!
Uhhh, isn’t this a free country? Shouldn’t we be able to get rich in the stock market? I got rich by trading thousands upon thousands of stocks and I made plenty of mistakes because thanks to any other ridiculous SEC regulations, there was no way for me to ever find/have a mentor. Now that I am that mentor that soooo many people need—teaching PennyStocking to anyone interested—the SEC has this rule that basically says the way I got rich in 4 years—playing the allegedly most random /dangerous stocks in the world and without using leverage—is too dangerous?!?!? Oh no you didn’t! My strategies are still gonna make people rich—quicker than most—but thanks to these SEC Bin-Laden-like-freedom-hating bastards, it’s just gonna take people with under $25,000 a little longer.
Problem #4: Hurts Short Sellers Who Add Market Liquidity
That’s right I said it, short sellers are good for markets—despite all the crap we take, we bring reason and liquidity into one sided markets, especially those that are filled with hype and manipulation like the penny stock market!
Problem #5: Punishes the wrong people
I understand this rule is supposed to protect those who can’t afford to lose much money and since they have little $, they are assumed to be unsophisticated traders/investors (who besides crazy TIM doesn’t use all their $ just to prove a point like this?!?!), but this rule is only applicable to those of us who trade securities—by and large who don’t even use leverage—while allowing traders in infinitely more dangerous niches total freedom. Those are the guys about which Osama Bin SEC should worry—their trading has proven capable of bringing down legendary institutions HERE and HERE and economic collapse!
So,go on and leave short or long comments, but comment often—in the words of William Wallace, I say to you “Aye, fight the SEC and your future in the financial industry may die. Run, and it’ll live… at least a while. And dying in your firms, many years from now, would you be willin’ to trade ALL the days, from this day to that, for one chance, just one chance, to come back here and tell Osama Bin SEC that they may regulate our industry, but they’ll never regulate… OUR FREEDOM!
Now you can Twitter any questions/comments to TIMhelp and obviously you can follow TIM on twitter too!
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TIM Alerts
View All| Date | Stock | Position | Ideal Exit | % Gain |
|---|---|---|---|---|
| Nov 24 | KVHI | Short | $3.70 | 18% |
| Nov 20 | STSX | Short | $3.10 | 11% |
| Nov 18 | PERY | Short | $3.75 | 25% |
| Nov 11 | IIJI | Short | $2.80 | 5% |
| Nov 6 | CVI | Short | $4 | 15% |
| Nov 5 | MECA | Short | $1.95 | 51% |
| Nov 4 | CVI | Short | $4.81 | 4% |
| Nov 3 | NAK | Short | $3.20 | 5% |
| Oct 29 | EVC | Short | $2 | 26% |
| Oct 28 | HSNI | Short | $6.80 | 7% |
| Oct 28 | HSNI | Short | $5.75 | 4% |
November: 9 alerts, 15% avg gain
October: 11 alerts, 14% avg gain
PDT rule burned me twice on my zecco account. The first time, I played dumb, and got my privileges back. The second time, I shorted a stock, then added more shares to my short position, finally covering all at once. This was counted as two day trades, putting me over the limit, again restricting my account. I’ve switched to TOS, so I won’t have to wait 90 days to daytrade again. I’ll have to use Zecco for holds only.
Im considering jumping back into GRO at 7.00 Jeff, depending on what it does into the close. A bit scared of holding overnight but it may pay off.
SQNM is a great short at 9.51. The news is good but not that good. Historically biotechs with this type of news get sold off the next day.
Jeffery Moates that is why your a lemming your LAZY.
enjoy
I think the rule is ridiculous. Like many have said before, there is no restrictions on gambling. Limiting day traders because they think its bad for the traders and the market is humorous considering whats happened to the economy in the last year. Huge big name cooperations are loosing their shirts. If day trading was such an addictive gambling epidemic there’s be more stories of people leveraging debt to get above the $25k limit. People aren’t doing that the limit isn’t doing anything but slowing down people that want to learn to trade stocks and turning away those that don’t think it is worth it unless they have a lot of money.
I would be a little more OK with the rule if it was limited to a certain trial period when starting a new account at a broker. That way someone thats had 6 months to a year with a broker is more likely to have done their homework then someone fool heartedly jumping in. At least I think it is more likely that the SEC would compromise with a time limit more then completely dropping the rule all together. It may be easier to bend them then break them.
Young Gunz- great post! Tim- I’d give him $5 of my TimBucks for that one since I’ve posted at least 5 off-topic comments in the past few days.
ps. NTI- you’re cleared to tank now- thanks!
No, I’m not shorting GRO. I did re-enter my ROYL short position when the 60 min sma crossed the 10 min sma. But that was still a poorly timed entry because it was right at support at $9. Luckily it’s still close to $9. I’ll probably add a bit to my position into the close and look for it to fill the gap tomorrow.
Yeah, it’s a commodities play and not an ideal setup but I would say the odds are still in my favor for a further decrease.
NTI…probably a 50/50 chance now of it going either way…just like playing roulette
Ok.. overnighter.. ring in..
Added a bit more to my ROYL position. My average entry price is now $9.04.
YngvaiMalmsteve…im also short ROYL. yes…under $9 now.
ROYL, nice fall towards the close. Yngvai, are you still on board?
ROYL closing right at $9
new post:
http://www.timothysykes.com/20.....e-website/
i hope u ROYL shorts get squeezed royally, tomorrow’s a new days, i’m waiting for it to crack support at $8.80 first
TommyTim, pretty decent pick with SQNM, although I bet it would be a 3-4 day short to get any decent gains.
novalis…you in ROYL also? Nice close.
Yep, novalis, that was a nice fall into the close and I’m still on board. 200 shares at $9 and another 35 shares at $9.29 for an average of $9.04.
If I had been smart I would’ve never entered earlier in the day, and just waited for the close in the first place. Would’ve saved myself that $100 loss.
balls…or just plain nuts…
You were able to short these stocks on zecco? My list does not have most of them.
yes, the same for me…was way too late. did struggle with ENT today, was looking at a nice $.40 gain, but my limit was off one penny, did not get filled, and had to get out of my position with a loss instead :-(
Still, ROYL looks into the abyss, we will see tomorrow. GL to you and eb!
novalis…thanks. gl to you also.
Tim, I’m a bit confused. You always talk about shorting into the close on the 1st down day of a big run-up. You yourself did that with PDO on its 1st red day, shorting around $20. Yeah, you got bounced out, but I remember you saying it was still a good trade due to the odds. So am I missing something here?
if u guys could, please post your daily dollar gain/trades in the comments section of this post:
http://www.timothysykes.com/20.....e-website/
so i can feature u!
Tim - If oil continues to go down and dollar up, how will your holdings in PRPFX do
na PRPFX is diversified and conservative, expect to have $ in it for many years, if not decades
just got out of my 90 day restriction from the last day of febuary, sucked really really bad holding out. I’m on disc 3 of the dvd set and will be joining you in pennystocking really soon.
It’s interesting that the lack of regulation in gambling has come up when talking about the SEC PDT rule. There is a simple reason that there are no “small account” type regulations in gambing- the big money casino owners can afford to pay their lobbiests to stop any type of regulation that might hurt them, whereas no one gives a damn about speaking out for us “poor” (and as far as Wall Street is concerned, we are poor) people.
If this hurt the brokerages a bit more, we might get some backing from them, but we’re small fish even to them..
Thank you Tim :)
Start up a petition w/ solid evidence and I have no doubt in my mind you could get hundreds of thousands of signatures.. Present it to SEC with your argument and maybe if your lucky they wont throw it away right in front of your face, but after they smile, shake your hand and you walk away ;)
I have sufferd all of these problems 1 - 5. This rule is just another way to keep the poor poor.
I have suffered all of these problems just another way to keep the poor poor
I wish they would raise the number of trades to 10; I think it’s absurd for 3 trades a week.
when they implemented this rule things were different.
DAMN THE SEC- WHAT A BUNCH OF NAZI’S! THERE JUST FUCKIN WITH U TIMMY BECAUSE UR JEWISH!!!! SUE THEM FOR DISCRIMINATION!!!! shalom shalom.
Max’s Investment World Stock Market Challenge. is it woth my time???????
Happy to break even today:)
Should have taken profits faster, theres no reason to get gready you can always place another trade and lock in profits, other then of course for the Ben Laden communist basterds the fucking SEC! But I should have know better I was temperarly on the wrong side of the trade.
I FUCKING HATE THIS RULE!!!!!!!!!!!!!!!!!
You guys should all be writing letters to the SEC. They have a section on their site where you can file complaints. Not that letters will do any good, but it’s better than bitching about the rule amongst ourselves. If you can get enough people giving them *logical* reasons as to why the rule should change (i.e., it penalizes traders for exiting trades quickly when they should, and the rule increases their risk), who knows…maybe somebody will listen….or maybe not. But it’s always worth getting your voice out there.
I’ve written two letters already.
My brother said it the best in describing how stupid the PDT rule is. Is the stock market not the biggest casino in the world. How come i am restricted in placing more than 3 bets a week. I can go to a casino in Las Vegas and place as many bets as i want. Imagine if Casinos had a PDT rule. You can only gamble 3 times a week,but if you have $25,000 or more, you can unlimited gambling privileges. How insane is that!