Happy Friday, Evolvers!
Just as I predicted, this was a big week for crypto stocks…
Marathon Digital Holdings Inc. (NASDAQ: MARA) jumped another 15% in the past five days, now up nearly 50% over two weeks.
This move led me to buy sympathy calls on Riot Blockchain Inc. (NASDAQ: RIOT), which has lagged behind MARA so far in this rally.
I’m still holdings these RIOT contracts, looking for a potential move to $14+…
And speaking of potential moves, in today’s Q&A, I’ll answer a question about how I discover trading opportunities and what leads me to expect certain things to happen in a chart.
Keep reading and I’ll show you what I mean…
“What’s your advice for someone with an account under $25,000, enforced by the Pattern Day Trader (PDT) rule?”
For anyone unfamiliar (although you should be), the PDT rule states that anyone designated a “pattern day trader” must maintain a minimum account balance of $25,000.
CAUTION: The PDT rule applies to stock and options alike!
If your account drops below $25,000, you’ll be limited to three trades every five trading days.
This can be a big inhibitor for day trading, but it’s not all negative…
While reaching $25,000 may sound like a big hurdle to clear with a small account, I actually think the PDT rule is a positive thing for most newbies…
It Helps You Avoid Overtrading
The PDT rule helps protect inexperienced newbies from the perils of overtrading.
You can’t make 10 terrible trades in a day when you’re under the PDT rule.
You’re instead forced to zero in on the best setups only, which is a blessing in disguise for most inexperienced traders.
It Discourages Emotional Trading
Without a limit on the number of trades you can make per day, it’s easier to fall into the trap of emotional trading (or even worse, revenge trading!)
But when you can only make three trades per week, you’re literally barred from making too many emotional trades. It’s impossible.
The key is to carry this same discipline over into your strategy once your account cracks the $25,000 mark.
It Helps You Learn By Doing
Aspiring traders need to be aware of the risks and challenges associated with day trading.
There’s no better way to learn this than to start trading, and the PDT rule makes you do so in a productive and calculated way.
It forces you to learn about market dynamics, risk management techniques, and the importance of due diligence … in real time!
My Advice for Anyone Under The PDT Rule
If you’re under the PDT rule, I suggest doing the following…
- Take small positions in the best setups only…
- Risk a low % of your account on each play…
- Grow your account gradually over time…
- Prove to yourself that you can double (or even triple) your account size with small positions…
- Only then can you start taking on bigger positions…
“What do you consider ‘trading opportunities’ and how are they discovered? Do you use a scanner of some sort?”
A trading opportunity can be defined as a promising setup in a chart that could potentially lead to profits within your strategy.
Personally, I use a very specific method for differentiating between good trading opportunities and subpar setups…
I’ve said it before and I’ll say it again … I determine most trading opportunities by referring to The 3-Item Checklist!
Years ago, my old buddy Tim Bohen showed me the checklist and it completely changed how I assess trading opportunities.
Now, back to the checklist…
I’ve written about the checklist in detail here. But in the meantime, I’ll give you a brief rundown of what I look for in any setup…
- Elevated volume
- Major news catalyst
- Volatile chart
If I don’t see these three attributes in a potential trade, I move on to the next one.
Having the discipline to stick to the checklist has helped me be consistent over my decade-plus of professional trading.
Bottom Line: I wouldn’t be a multi-millionaire without The 3-Item Checklist!
Another important factor in my trading is how a stock reacts to certain key price levels.
Occasionally, if I see a major break of support or resistance, I’ll enter a setup based on that level alone.
And to answer the last part of your question … No, I don’t use a scanner of any sort.
I simply focus on volatile stocks in hot sectors and keep my watchlist updated daily. The checklist is my scanner!
Remember that Monday is a shortened trading day and that the market is closed on Tuesday, July 4!
Plan your trades accordingly. Don’t get caught holding a position into the early close!
But most importantly, have a great weekend! I’ll be back in your inbox on Monday.