Stocks got roasted on Friday, as all major indices took a dump. However, if you are new to trading penny stocks, I have a secret to share with you.
Penny stocks generally don’t correlate with the overall market.
What does that mean?
It means penny stocks trade on their own island… and can experience volatility on days where the overall market is seeing none at all. In other words, there is always action and opportunity when trading penny stocks.
Now, if you are trading a small account, you’ve got to be tactical. You see, if you have a trading account that is under $25K in value… there are restrictions on the number of day trades you can make.
A day trade is any type of trade you make that is entered and exited the same day. Penny stocks are volatile, creating opportunities for traders to make quick profits and day trade.
However, if you make too many day trades when your account is under $25K, your broker will penalize you… More on this later.
That said, I’ve figured out a way to “hack” this trading rule known as the Pattern Day Trader Rule.
(While most traders struggle with the Pattern Day Trader Rule, I’ve figured out a way to navigate around it with great success. If you want significant gains from a small account, click here)
If you have an account under $25K and you want to be active in the markets then read on. It’s the best way I’ve found to stay active without getting penalized by my broker for violating the PDT Rule.
Now, when you’re first starting to learn how to trade penny stocks, there are rules to learn. One rule that could freeze your account, if you break it, is the “Pattern Day Trader” rule.
According to the U.S Financial Industry Regulatory Authority, a pattern day trader is anyone who executes four or more day trades within five trading days. Now, the number of day traders must also represent over 6% of the trader’s total trades in their margin account for those five trading days.
Now, if you want to make sure you don’t break this rule, you can contact your brokerage firm. Your broker could also designate a trader as a “pattern day trader” if they have reason to believe the trader will start to day trade.
Under FINRA’s rules, if you’re considered a pattern day trader, you must have at least $25K in your trading account… and you can only trade in margin accounts.
If you don’t have $25K to trade… that’s okay.
My strategy actually “goes around” this rule.
You see, my goal is to turn a small account into a “large” one quickly… so traders can see they don’t need a whole lot of money to build up to an actual day trading account.
You’re probably wondering, “Well, how can I trade without having $25K in my account?”
Basically, if you buy and sell a stock within the same day… more than four times within five trading days (according to FINRA)… you’re a day trader. But make sure to check with your broker to see if they use three or four-day trades per five business days to determine if you’re a PDT.
So if you think about it… if you buy a stock one day, and sell it the next… that’s not a day trade.
Let me walk you through it.
Penny Pro Penny Stock Trades
I know, this pesky rule might scare you at first… but my strategy allows you to work around it.
If you buy a stock any time during a trading day (9:30 AM EST and 4:00 PM EST), and sell it within that same day… that’s a day trade. For example, if you buy a stock at 10:00 AM and sell it at 3:00 PM… that’s a day trade.
Well, I have a work around.
You see, my patterns allow me to spot momentum trades… and typically, the day after I get in, they run higher. I scan for trades started around 2:30 PM, which I stream live, and find potential buys. Thereafter, I’ll buy the stock… and hold onto it until the next day.
Here’s what I’m talking about.
This pattern is known as the “staircase to profits”. Basically, you see the stock run up… pull back… run up again. Thereafter, you find a good price to get in… and the next day, you’re sitting in profits.
Now, I actually traded this pattern, and I alerted The Traders Council clients about it… which I run with Davis Martin.
Notice the time stamp of this email. I bought the stock at 3:34 PM… and I wasn’t planning on selling it that same day.
Well, the very next day… the stock did what I thought it would do… and I was locking in 13% on it.
Again, look at the time stamp. I sold it at 10:09 AM the day after I got in. That said, it wasn’t a day trade… and I worked around the PDT with my staircase to profits pattern.
That’s really all it takes to trade a small account and not be considered a pattern day trader.
That said, I’ll be back with you again later in the week, giving you some of my best penny stock trading ideas and tips. Look forward to catching up then.
P.S. Don’t forget to check out my partner’s (Davis Martin) free eBook in which he shows you how to scan for the direction of the market, identify support and resistance, and create an easy trade plan.