falling knives and the pattern day trader rule

[dvdadie]

trading a tiny account << $25,000 so subject to the pattern day trading rule.

usually place hard stops at 0.98 or 0.95 entry price. I would really like to do this on the day of the entry but I could easily trigger several day trades.

as a result, placing the hard stop on day #2 can be too late (the price has already dropped < or << 0.95). this results in bigger losses than expected.

any ideas on how to tighten things up?

thanks in advance...

 

[tomorton]

No replies yet.

I for one am not clear what you're trying for. Any more details you want to give?

 

[dvdadie]

No replies yet.

I for one am not clear what you're trying for. Any more details you want to give?

for example: I buy at $10.00 per share and immediately set a stop loss at $9.80. if it drops below $9.80 that same day = day trade.
on the other hand if I buy at $10.00 and wait until the next day, the open may be under $9.80 by a little or a lot. at that point, I can set a stop loss below the open / current price but it will be outside my original intended level of 0.98.

 

[tomorton]

Thanks, I see what you mean now.

But first off, if you literally mean to buy at 10.00 and set a stop at 9.80, that is a very tight stop for a multi-day position, highly likely to be hit by either meaningless intra-day volatility or a lower open or even a wider spread at a close / open / news announcement. Two other options to consider for a stop placement - either use TA to find a recent swing low or a meaningful support level and set the stop just below that, or use a volatility-based indicator like ATR: e.g. entry minus 2 x ATR20. This means wider stops so it would be wise to adjust position size downwards accordingly.

Generally speaking, yes, a good long position can be undercut by a low open. That's just a risk of trading. You can manage this risk down by either setting long entry orders to be triggered at some TA-significant level such as break of resistance or strictly defining your entries so you only take high probability trades.

Of course, the law of averages says that you're just as likely to get a higher open as a lower open, so over the long haul you should lose no more than you make from this sort of volatility.

Does any of this strike a chord?

 

[dvdadie]

Thanks, I see what you mean now.

But first off, if you literally mean to buy at 10.00 and set a stop at 9.80, that is a very tight stop for a multi-day position, highly likely to be hit by either meaningless intra-day volatility or a lower open or even a wider spread at a close / open / news announcement. Two other options to consider for a stop placement - either use TA to find a recent swing low or a meaningful support level and set the stop just below that, or use a volatility-based indicator like ATR: e.g. entry minus 2 x ATR20. This means wider stops so it would be wise to adjust position size downwards accordingly.

Generally speaking, yes, a good long position can be undercut by a low open. That's just a risk of trading. You can manage this risk down by either setting long entry orders to be triggered at some TA-significant level such as break of resistance or strictly defining your entries so you only take high probability trades.

Of course, the law of averages says that you're just as likely to get a higher open as a lower open, so over the long haul you should lose no more than you make from this sort of volatility.

Does any of this strike a chord?

great ideas! thanks tomorton

 

[stillkicking]

trading a tiny account << $25,000 so subject to the pattern day trading rule.

Just to clarify what you stated...

You are not required to set up a margin account no matter how small or large your account balance is.

Cash accounts of less or more than $25,000 are allowed. You are not affected by the PDT rule if you have a cash account. You can trade all day long as long as you have capital not tied up in trades or waiting on T+2 to clear.

 

[ifmcinstitute]

great ideas! thanks tomorton