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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- Finally Over The $25k Hump, Osama bin SEC Go F&^% Yourselves! | TIM - Timothy Sykes
- TIM - Timothy Sykes » » 9/19 Is The New 9/11: The Day The SEC Terrorists Tried To Bring Down America
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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
There are several issues with the regulations imposed on small traders (not necessarily unsophisticated).
1) Limits execution of good trading discipline.
If I enter a position, and set a stop target. I may be stopped out on the same day. If this happens 3 times in a rolling 5 day period (easy to do in current market conditions), the trader won’t be allowed to exit position 4 (risks’ catastrophic losses). And will have his acct locked for 90 days. For a crime against whom??
2) Overly regulated. A maximum security society.
Regulators are too concerned with keeping us “safe”. I don’t want regulated safety, like this. It is ok to provide safety against fraud, but not to regulate different laws for different financial levels of investors/accts. I have 4 accts i trade. In one brokerage acct over 100K, and 3 others below 25k. In one acct I am consider a “sophisticated” investor, yet the other accts I am not. What gives. I feel much more secure in my larger acct, and I am able to grow that acct more quickly because I am able to be more nimble as market conditions change.
If I buy 4 equities on a given day, and Goldman Sachs does the same, yet later in the day something significant happens (i.e Middle eastern conflict), both GS and I decided we don’t want to be in those issues. Who losses? Me. GS exits their 4 positions, and I can only exit 3. If I choose to exit 4, my acct won’t let me or I am banned for trading that acct and labeled as a Pattern Day Trader. Who was this law designed to protect, it sure isn’t me.
3) Outdated regulation.
Although this regulation is only 3 years old, it is no longer relevant. Perhaps it was created to prevent overtrading and excessive commissions. Commissions are cheap. They are much less expensive than having to hold overnight positions in the case of a rapidly changing market condition.
4) Who does it benefit?
This teaches the average individual that they are not sophisticated enough to handle their own money. And suggests they should give their money to a large Money Manager who operates with different regulations. Submit to the system.
I truly hope that the regulating institutions recount their decision, and repeal this Pattern Day Trader regulation.
Hey, Jonathan, those are AWESOME points. You should write a letter to the SEC regarding all those points. It may not do any good, but if we get enough traders writing letters (I’ve written 2 to the SEC and one to FINRA), giving logical reasons as to why this rule hurts us (not emotional rants or anything like that), maybe…just maybe…someone will eventually listen. I doubt it, but it’s better than just complaining to each other about it.
The key is to clearly outline how this rule hurts traders rather than helps them.
i closed my account due to this terrorist rule.
i now trade stocks through CFD trading (contracts for difference).
(non legal for US citizens).
more commissions but great leverage and no PTD
After I was finally able to scrounge up 5 grand to start daytrading, I opened an account. Now this dumb rule lets me trade one day a week before I’ve exhausted my 4 trades. I can’t get any experience or make any profits like this. What am I supposed to do, sell my house?
I have been flagged twice in the past year. The first time the brokerage simply called me, we talked and nothing was done. The second time the brokerage took away the “margin” part of my account until I wrote a letter explaining what my intentions were. I did this and the next day margin was restored.
I think the rule is preposterous while simultaneously believing that people absolutely have to be held responsible for making sure they have enough cash to cover any calls for additional equity to cover trades.
Self-regulation is in the toilet because of current events and while we can try to cast blame on someone else; if too many people blow it the rest of us will pay for it by losing privileges.
Timothy you are my hero! I wanted to follow the same sort of strategy you used when you went from poor to rich. I had not seen your website before today, but I sent this letter in to the SEC prior to reading this article.
You are a true man with high knowledge and integrity. I have high respect for you and I will let you read the letter I sent to the SEC below. Please continue your hard work against this Pattern Day Trader injustice.
The letter as follows:
“I just want to say that the pattern day trade rule is absolute junk. Why is the SEC protecting me from myself? Is the SEC trying to say I’m stupid and I can’t make my own day trade decisions?
Why does having $25,000 make a difference? If I have less money than this does this put me in a bracket I’m not supposed to attain? Therefore I must be locked out and discriminated on my trading abilities because I have LESS money?
I can buy as much as I want but I can’t put in a sell limit because I’ve been identified as a pattern day trader without the minimum $25,000. How does this make sense? The SEC is saying you can’t keep short term gains you have to go long unless you already have a lot of money.
Does the SEC even realize how Unfair this is?
You need to eliminate pattern day trading and let the free markets be free. Right now it’s dictator market not free trade market. Because you’re forcing me in a position I don’t want to be in.
What’s next? Are we going to need $50,000 in an SEC approved bank to file a complaint?”
of course the reason is to ensure that only serious professionals attempt to day trade. its not gambling, and most of the fools who mess with it lose their money. so its even somewhat benign that the SEC tries to limit them. otherwise you would say it was a scam to entice any fool with a few thou to come give them up to the market.
or you could trade futures for much less. or options.
Well if Tim turned 12k into 1.65 million who’s to say nobody else can do the same? That’s ok though, the SEC and US traders wont get my business. I’ll take it to Canada. Their brokers will gladly charge me trading fees and let me keep my profits so I can get to that $25k.
If someone inherited money and has $25k or more it doesn’t make them any smarter than someone with less money that really knows how to use it to make more.
Stocks are pretty much gambling, once you put in your money in a stock and you’re labeled a pattern day trader you lose control. That stock could go up or down and it is not your decisions. This is pretty much gambling, but gambling with limits!
I don’t want to be protected If i have a few thousand to lose it’s my choice to lose it.
I opened an account a few days ago and wanted to get into the swing of this recent bottoming out with some extra cash I have. I figured it would be interesting to see where it goes and the money wasn’t anything I’d miss if I lost it (2500). I’ve made a few trades and am up 16.6% in 3 days (account is in cash at $2923). I could stop now and outperform my sad 401k mut funds. Anyway, on my last trade I get this notice saying I’m a pattern day trader. No shit! I call up the broker and tell them what happened and they tell me I can’t day trade, it’s the rules, and they’ve exempted my account one time but I better not continue. What a crock of shit. So now I guess I have to find stocks I’m comfortable holding overnight, which is none. This market is messed up one day to the next, with a LIBOR rate in london tanking an auto stock in detroit the next morning. This is frustrating me because I could put 25000 on the line by going into a LOC I have, but that would be a risk to me, while 2500 simply is spare cash. Isn’t this the opposite of what they wanted to accomplish? Ridiculous.
Couldn’t agree with you more. Over the past week, this rule has cost me substantial gains. Friday I was screaming at my computer knowing that a $2k gain could easily turn into a $6k loss on Monday morning. My dilemma, either go flat and trigger the rule or hold over the weekend and face a potential market meltdown on Monday. Riding the 4 trade limit for the past couple of weeks and having given back hundreds in gains by being forced to hold over night or trigger the rule–right now I’d gladly trade my position for a $500 loss, just for peace of mind and to avoid exposure on market open on Monday.
In the current market, with the extreme volatility, I’ve never seen greater risk/reward opportunities. The irony is that I just had a CD mature and will cover the $25k requirement on Monday IF I don’t get nailed with a big market open down on Monday. My point is that even conservative swing traders such as myself in a volatile market such as we now have are presented with the dilemma of either protecting profits and cutting losses or losing profits and increasing losses by this rule.
Well, I’m capitulating. A severe sell off on Monday will lose my broker a very active trader or conversely, if the market holds, I am forced to have what will often be dead money sitting in my account. The rule is stupid–no one can override the old saying “a fool and his money are soon parted” by hurting the rest of us.
where can I get level-2