Do you know all of the stock trading rules and regulations that may affect your trading?
If you don’t, start studying now.
Stock trading rules affect the number of daily trades you can make, the types of patterns you can trade, and the strategies you can use.
So don’t wait until you lose money – or worse, get your account banned – to learn them.
Learn these rules before you start trading. Knowing what they are can help you create your own trading rules.
In this post, I’m going to break down the stock trading rules and regulations you need to know and how they can affect your trading. Also, I’ll show you why you need your own stock trading rules and share some of my stock trading rules to live by.
Let us do this!
What are stock trading rules?
The most popular day trading rule for accounts under $ 25,000 is the Pattern Day Trader Rule (PDT).
It limits the number of day-to-day trades you can make with a small account. This only affects traders who trade through margin accounts.
Cash accounts are not subject to PDT – but it takes longer for funds to be paid. This could limit the number of trades you can make when using a large portion of your account in each trade.
More on the PDT rule in brief … To learn more about margin requirements, visit the FINRA website.
Daily trading rules over $ 25,000
There are no daily trading limits when you have at least $ 25,000 in your margin account.
But once you take a few losses and your account drops to $ 24,999.99 … Yes, you are subject to the PDT.
SEC Day Trading Rules
The SEC approved the FINRA Sample Day Trader Rule in 2001 after the dot-com bubble burst and many amateur traders and investors suffered huge losses.
FINRA created the rule to protect new and uneducated traders.
Pattern Day trading rule
The PDT rule limits traders to three-day trades per rolling five-day period.
This only affects merchants with a margin account less than $ 25,000. Because of the rules that restrict day trading, many new traders are wondering …
“Is pattern Day trading illegal? ”
Not in the sense that you will go to jail for it. However, your broker can suspend your account for up to 90 days if you break the rule. In this case, you will have to wait and then top up your account with USD 25,000 or open a new account and top up.
Many traders hate this trading rule. I think it’s great.
It helps prevent new dealers from over-trading. There’s no need to be in and out of positions all day. You should focus on finding your best setups and growing your account with small profits over time.
I always encourage new dealers to start small. Even if you have enough money to start with $ 25,000, you aren’t risking everything. Start with $ 2,000 or $ 5,000.
Better yet, trade paper before putting your hard earned money at risk.
StocksToTrade has a great feature for paper trading. You can adapt it to your actual account size and commission structure.
I love StocksToTrade because it is specially designed for trading penny stocks. It has fantastic charts, built-in scans, watch lists, and social media feeds. And the “Breaking News Chat” add-on function quickly draws my attention to the latest news. It also has broker integration so you can research stocks and trade on one platform.
Get a StockToTrade 14-day trial for just $ 7 or get it with the Breaking News Chat for only $ 17!
(Short Disclaimer: I took pride in designing and developing StocksToTrade and am an investor in it.)
Can you buy a stock and sell it the next day?
Buying a stock one day and selling it the next day is not considered to be day-to-day business. You can trade unlimited overnight, even with a small account.
That’s why patterns like my first green day OTC work great for traders starting with a few thousand dollars. You could do five overnight trades a week and still have three day trades.
Many of my Trading Challenge students are under the PDT. Because of this, I am teaching patterns and strategies that you can use to potentially build a small account over time.
It takes a lot of discipline. You can’t let emotions affect your trading. And this is where your rules come in … they can help you focus on your risks and goals when you are in a trade. But you have to be disciplined enough to follow them …
Learn to accept trading rules. If you act without them, you are playing.
You must accept the regulatory rules for stock trading – and your own rules – for every trade. Here are some of me …
5 stock trading rules to life
Many traders ignore rules and lessons until they start losing money. Then they quickly realize how important they are.
Rules aren’t fun, but they are essential. They help protect your account when a stock goes against you. They can help you focus on the best setups and prevent over-negotiation.
You don’t have to be smart to make it on this game, but you do have to be disciplined.
Here are my stock trading rules that I must live by …
1. Study the market
All of my top students are passionate about the markets. You gotta love it Almost to the point of obsession.
You must be hungry for knowledge. A curiosity about what makes stocks move the way they do. And why some have potential, others don’t.
Then you have to study your bum. Knowledge doesn’t come overnight. There’s a reason most of my millionaire students are in their third or fourth year of their trading trips. *
It takes thousands of hours to look at charts in real time to get a feel for price movements. So don’t try to speed up success. You don’t even have to act at the beginning …
Watch the market as you study my thousands of video lessons on Profit.ly, all of my DVDs, and my 1,400+ videos on YouTube.
(* Please note that this type of trading outcome is not typical. Most traders lose money. It takes years of dedication, hard work, and discipline to learn how to trade. Individual results vary. Trading is inherently risky Before starting any trades, remember to do your due diligence and never risk more than you can afford to lose.)
2. Use the right broker
When it is time to trade, you need the right broker to execute your trades. I use E-Trade and Interactive Brokers. It’s not because they’re the best. They only suck the least for my needs. They work for me and my trading style.
Find the one that suits you best.
If you want to trade OTCs or short penny stocks, you need a broker who allows it and has good execution. Do your research before depositing any money.
I would avoid trading apps like Robinhood and Webull. I don’t think they give you the best options for day trading cheap stocks.
Do not use an offshore broker to bypass the PDT rule. It’s an unnecessary risk. Next …
3. Have a plan
A trading plan is essential to trading success. Without it, you play. And you are more likely to take over emotions, which leads to mistakes.
You should have a plan before you risk any money.
Use my Sykes Sliding Scale to prepare for each trade. I go through all seven of my trading indicators in detail on my “Trader Checklist Part Deux” DVD. Some don’t even have to do with the inventory or the samples. You need to consider how other factors like your trading psychology can affect your performance.
The most important part of your trading plan should be …
4. Reduce losses quickly
Reducing losses quickly is my # 1 rule. This is the best way to protect your account.
Risk management is a must.
I sometimes reduce losses so quickly that I don’t even wait for a loss. If a stock doesn’t do what I want or does something unexpected, I get out. I don’t care if I only make 1% on the trade. I’m not going to wait for a loss to cut a trade that doesn’t do what I expect.
Losses are part of the trade, but if cut quickly they can stay small.
Your trading plan shouldn’t just include a loss reduction plan. You also need to learn …
5. Sell in strength
You should have one destination for your trades – where to take profits.
Learn to sell in strength. Go for singles. Don’t rock for home runs.
Once a stock does what you want it to be, it’s easy to think: “I’ll just last a little longer” try to get more out of trading. Don’t be greedy. Take profits on the go.
It’s okay to sell too early, but it’s not okay to stay too long.
My top students and I don’t catch the bottom and the top with every move. I almost always sell too early. If you follow this trading rule, your small profits can add up over time.
Take my former Trading Challenge student who became the Matthew Monaco Challenge chat room moderator. He’s a millionaire trader now. His average profit is around $ 1,300 per trade. * However, this corresponds to a trading profit of over USD 1.5 million. *
I teamed up with Matt to create my 30 day bootcamp for new traders. It’s a month of class with daily assignments and homework. Bonus: It comes with the book “The Complete Penny Stock Course” and my DVD “Pennystocking Framework”. And you can get all three for under $ 100. Get it now in my boot camp!
The conclusion of the stock trading rules
It is important to read up on all the rules and regulations for trading stocks. Ideally, do this before you start trading. Once you act, you can create your own smart rules.
Your trading rules should match your trading style, patterns, and personality. They can help you capitalize on your strengths and minimize mistakes.
Too many traders make mistakes and lose a lot of money before realizing the importance of trading rules. You don’t have to learn the hard way …
You can learn all of the rules for trading stocks that I teach my students in my Trading Challenge. I have learned my rules through trial and error in the market for more than 20 years.
If you are accepted into my challenge – and not everyone – you will have access to thousands of video lessons and all of my DVDs. You will also receive my weekly live trading and Q&A webinars as well as over 1,000 archived webinars from me and several top traders with years of experience.
It is not easy to become a self-sufficient dealer. It takes a lot of hard work, time, and dedication. But it can be so rewarding if you stick with it.
Ready to start? Apply now to my Trading Challenge.
What are your top stock trading rules? Let me know in the comments … I look forward to hearing from you!