People ask me all of the time if they can day trade with an account of $5,000. The simple answer is yes. However, the IRS has rules when day trading and in order to avoid being a PDT or Patterned Day Trader, you must have at least $25,000 in your day trading account or you will be limited to three trades per week. This means that you must be very picky when selecting your buys or shorts because of the PDT rule. There are several things you need to watch for before choosing a stock to buy or short:
Volume – how many shares are available to trade? You run a risk if day trading a stock that has very little volume or shares for sale. Look for stocks that have a good average trading volume. You also want to make sure that there is enough movement during market hours with these stocks, otherwise, you should avoid them.
The stock ticker – who is the company? Is it a Chinese company? China does not follow the same rules as companies in the United States and you have to make sure that it is a legitimate company, not a fly by night one. If you are well versed in a particular industry and can learn the sector’s particular nuances, you may be successful in buying or shorting a company’s stock. There is no 100 percent guarantee you will always win, as there are so many variables at stake, but you can increase your chances if you increase your personal knowledge.
Cost per share – with a $5,000 trading account, you want to generally stay away from Penny Stocks and focus instead on stocks that are in the $20 to $40 range.
Research – you should be reading a company’s financial statements before taking the lunge to buy or short its stock. Patterns – look for patterns when buying or shorting a stock. Keep in mind that day trading is all about looking at patterns to figure out when it is best to enter or exit a stock to make a profit or to minimize your losses.
Day Trading Chatroom – look for a day trading chatroom that has other successful day traders with knowledge and expertise in different industries. Consistency in making a profit is the key to being a successful day trader, as there is no one in the world who exists who has 100 percent green days for the 252-day trading days available every year. Luke Murray does have red day trading days (or losses), however, the majority of his trades are green (wins) and we successfully make a profit every year.
Options is also another area that is difficult for many day traders to be successful in, I personally know so many people who have blown up their day trading accounts trading options, which is why ELITE TRADER, LLC rarely trades options and only when due diligence and the research has been performed before alerting an option trade in our chatroom.
Day trading is inherently considered a high-risk investment, but with knowledge, research, expertise and patience you can make money if you also stay disciplined.
Disclaimer: The information provided in this article is as a service to investors. It is neither a legal interpretation or a statement of policy. If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law. Stop Loss orders and Stop Limit orders may not be available through all brokerage firms. Investors should contact their broker to determine which orders are available for buying and selling stocks, and their broker’s specific policies regarding these types of orders.