What is the pattern day trader rule? The pattern day trading rule prevents people with less than $25,000 in their investment account from engaging in day trading.
If you use a margin account with less than $25,000 and execute four or more day trades in a five-day period, you are at risk of being labeled a pattern day trader (PDT) and may have your account temporarily suspended.
What is a day trade? A day trade involves entering and exiting the same position in a single trading day.
So, how do you avoid pattern day trading? You can set up your bot to automatically avoid this situation.
This video tutorial demonstrates how to use a decision recipe to prevent you from entering and exiting trades on the same day. The recipe can reference how long a position has been opened as a safeguard against intraday trades.
For example, if you set the time frame to less than one day, the automation will only proceed down the “Yes'' path if the position has been open for more than a day. If not, the automation simply ends and will not initiate a close position action until the criteria for trade duration is met.
We all love to trade. And in all the excitement, we may lose track of our daily position count, leading to unintended consequences from the SEC. The bots are here to help alleviate the fear of overtrading in a small account.
With automation and detailed recipes, bots can keep an eye on your trading limits so you don’t have to stress about your portfolio.
Episode #45 of the Option Alpha podcast has more information about the pattern day trader rule: Pattern Day Trading Rules – What Are They & What Can go Wrong?