Tuesday, March 31, 2009

how to get around the Pattern Day Trader (PDT) designation

as we discussed a couple of posts earlier the Pattern Day Trader (PDT) rule has caused quite a lot of grief in my life. and i suspect many a other trader has suffered under the insanity of this abomination foisted on us by an idiotic SEC.

so recently i was PDT'ed again and because I was worried about just such an occurence I had been doing research on how to get around it. Below, are some thoughts on the various mechanism's found on the net. all legal ofcourse.

1. To the best of my knowledge, PDT applies to all the following trades. stock buy/sell, stock options buy/sell, futures buy/sell, futures options buy/sell. i am not sure about currency or commodities trades. but, frankly you can't trade those two without a fairly large account. 100K++.

2. Open an account with a brokerage based overseas. There are 2 problems with this. I could not find a single decent brokerage outside of the USA, which had a nice internet front end and fairly cheap trades. I checked out UBS, Australian brokerages, etc....but, nothing good. This might work though. Except, when I tried UBS, which is Swiss, the moment they knew i was an US citizen, they funneled me to their USA offices. So, that didn't work out. I gotta check out Japanese brokerages though.

3. Go through a proprietary trading firm which sets up a shell account in their name, but with whatever level of capital you bring. i don't think you can trade their capital, except on exhorbitant margin rates. plus they charge all types of fees and here's the worst part they take a % of your gains. but not your losses. stay away from them.

4. OK, HERE IS THE BEST WAY TO GET AROUND THIS. open two trading accounts with different firms. in one trade only as a daytrader, i.e. with net worth over 25K. in the other trade with the daytrading rules in mind. So that way, if you get over 25K, you wire the funds from one firm to another and now you can happily day trade away. and if you dip below 25K, no problem wire the money to your daytrading restricted account in the other firm and you're all set to go. the only bad part, is the wire cost, about $50 max and the delay in moving funds around. but, hell that's barely a day.

NOTE: I don't absolutely know for sure that this will work. I have already opened another account, but for now i will soon be over 25K (hopefully) and IB is my primary broker. I really honestly don't think your previous trading history is available outside of one firm, so they really don't know if you are a daytrader or not. so basically, even if you are pegged as a daytrader at one brokerage, the other doesn't know about it. unless they transmit the info. to the SEC and it retransmits it back down. and i can't imagine the SEC being that on point :)

so, there you have it. my thought's on how to escape the PDT designation.

oh btw, here is another way to get around this, but it is so whack...it worked for me though. i got designated a PDT about 2 / 3 months ago. the rule say's you can get one reset only in about 180 days. so i got a reset. then i got redesignated and i said WTF i'll ask them to reset it again. AND IT WORKED. they reset my account a second time. maybe they don't keep track of the resets. maybe they just don't care. maybe 2 months is too long a time for them. they sure like my commissions of course :)


whack day

as you know i was long GS and X and when i checked in the morning...the futures were up, fairly nicely. but, i didn't like it. i was worried about the downside. i thought it was a setup. i usually compute sell level, but maybe it was the hangover or that i needed to get to work at some point, but i didn't compute crap. i just sold at the open. i was more worried about GS and sold that first and then got rid of X. i should have done the opposite, because GS went on a massive tear for the rest of the day...up over 6 ducks...i left a lot on the table. but, i don't have any regrets about that because the action for the whole day was pretty illogical...i thought definitely we needed a rally, some bounce back and that would have been around 100 points on the DOW, but GS closed it's entire gap, i.e., it went from 108 to 101 and then back to 108....it only sold off some at the close. that made no sense to me. i wanted to short it at 106, luckily i didn't. it was a scary market.

i did however, create a minor faux paus...before i left for work, my conviction for the downside was such that i shorted IBM around 96. actually it was a level i had computed from the day before. so i get to work and crap IBM is at 97.5...there goes my theory. the market was tepid but GS and IBM were blazing. the rest of my screen was pretty limp. weird. around midday i bought some more IBM puts...i wanted to average down and this really felt like a fake out rally. no way would i value IBM at 98. fuck that.

IBM held up pretty good for the rest of the day. it and GS cracked at the close, so no i am about break even, but tomorrow is critical. the market is overall at a balance right now, with some stocks like GS and IBM overbought...so we could go in any direction tomorrow. i might be out of this trade fairly quickly although back to 94 would be nice.

two pretty girls are playing catch ball in the park below my office. how nice. spring is finally here. i have to go home and do taxes. fuck. merde.

first let's catch up on the trades

as you can see from a couple posts back, i finally got out of GS, which was a terrible trade, but overall my equity was not so bad. only thing was i was stuck with the PDT designation and i was thinking of ways to get around it. finally, i thought that why not ask them to reset my account again. i didn't think it would work, since they just reset it like 3 months ago and the rules require 180 days in between. but, somehow it worked and they reset my account. it took a frustrating amount of time though, with some very juicy opportunities just waiting to be had.

anyhoo...on Friday my account was reset. i could trade again. straight away i wanted to scalp something / anything...it would waste one of my day trades...but i wanted something warm and wet hanging from my belt. (wtf, is he talking about?)

i shorted 20 IBM near the end of the day, because it was one of those days, where things just keep on going down and always close badly. unfortunately, IBM did not follow the script and i now had an overnight on my hand. and a bad one at that. huge down day and i'm short, going into the weekend. oy vey.

luckily, Obama slammed GM and the futures were very solidly down on Monday. i had a hangover and didn't want to be greedy, so i sold right at the open...and that was the lowest IBM went that day. after that it went straight up, even though the market was tanking. i thought about shorting it at close, but thought it still had strength and quite wisely decided to give it another day.

some very nice duckage on that....check the trades :)

like i said, IBM kept going up even though the market was tanking badly. around midday i shorted IBM again...but it was unnaturally strong and fluctuating around like mad, so i sold for a small gain...and very wisely too, because a couple of minutes later, IBM jumped up big and kept up going up from there.

i thought the market was oversold into the close and i bought some X, based purely on it's 13% decline and at the last moment went long GS as well. it was beaten down a lot for no reason, but i was worried about it...it was near 100, a break point.

unfortunately, i thought Monday was a Tuesday and went and got drunk again. Fucking quitting smoking is gonna make me an alcoholic :) we'll see !

sorry for all this delay

i just haven't felt like blogging for the past week or so...plus i'm trying to quit smoking, which is going fairly well, except that i am drinking way more now...anyway here are some posts for you...cause my trading has been going well.

Friday, March 27, 2009

the aftermath

well, as you can see after the GS fiasco, i was severely, well not depressed, but certainly disenchanted with my performance. how could i screw up so much !!! i needed some time out to think over things and to heal. also , i wanted to watch this latest rally, to see what i could learn from it. there were some technical aspects which needed to be studied at leisure.

however, an even bigger problem has been looming on my daytrading amitions...it's the mother fucking Pattern Day Trader (PDT) rule.

this rule created by the SEC, stipulates that if you make more than 3 day trades in a 5 business day period, you are a pattern day trader (PDT) and need to have at least $25K equity in your account. this equity can be a combination of stocks and cash, but the amount is at least 25K, with brokerages having the ability to set this level even higher but never lower.

1. the real reason for the PDT rule is to protect brokerages which lend to traders on margin. The SEC saw that brokerages were lending traders 2 to 4 times leverage which when used with risky positions, like naked shorts, writing calls/puts, could lead to rapid losses, the decimation of the entire position, and in fact put the fucking brokerage in hock for your position.


So, basically they said have $25K in your account, so that there was some cushion for the losses.

BUT, the whole problem is margin...DON"T ALLOW MARGIN and the whole problem is MOOT....but not in our lobbyist oriented congress...the brokerages MAKE MAD MONEY ON LEVERAGE, on any given day they are lending millions at 5-8%...allowing rampant and systemic SPECULATION.

Here's some common myths about this rule which i would like to debunk (since i have been researching it for months now):

1. it was created to protect you, John Doe the helpless public -- bullshit -- this rule has the opposite effect, since it doesn't allow you to trade with smaller amounts and learn from experience, but instead makes you save 25K, which then causes all kinds of stress and panic. Case in point, take me, i have flirted with this level many times and many times i'm thinking more about this level of funds than my position, worried if i go lower, i can't trade. it really shouldn't be a factor in trading at all.

2. the poor brokerages have to be saved -- i don't disagree -- but, this problem was solved long ago...the good brokerages just didn't allow you to trade risky positions on margin. simple. want to buy calls or puts, no margin, have the cash. 0 risk for the brokerage. now for more complex positions....firstly they were disallowing margin...however, for some of these types of trades...for eg, shorting a stock is net debit transaction for your account...basically you sold something you didn't even have...stock goes down...good all around...stock goes up, now your account is going negative...since there is no limit to how much a stock can go up, it can eat up your account and then the brokerage is on the hook.

however, brokerages hate to lose money and long ago, they put severe restrictions by themselves on these types of trades. perhaps pre 2000 the technology was not quite there, but i know that the last couple of years, most good brokerages have real time monitoring of your credit situation. that is they let you short, tell you how much losses you can suffer for your account before they liquidate your position. and they are very conservative....i have only written naked calls or puts a handful of times, because the margin requirements for these transactions are very severe.

just to be fair, here is the only scenario the PDT will work...you are in a risky position, very close to be being called by your brokerage, i.e. being collapsed out of the position by them, and the trading day is over. now you have an overnight. a plane could hit the headquarters of your company, the US could go to war, Brad Pitt could go back to Jennifer Aniston, Bernanke lowers the Fed rate to -1 %...haha...oh my i have so many more of these...but basically your position could get blown out of the water....and next day you can't cover and the brokerage now loses money.

this kind of price movement overnight is very rare, especially over one stock and in any case the margin's are usually calculated with 15%-20% price volaitility in mind....something which was never done with mortgage loans, or the CDO's (collateralized debt obligation) based on the loans or the CDS (credit default swaps) based on the CDO's.

and here they are regulating us little fish Patter Day Traders...like us with our chewing gum money are going to wreck the financial system. HOW IRONIC !!!

so the PDT sucks...read the next post on ways to beat it and my own current experience with it :)

Thursday, March 19, 2009

anatomy of a meltdown

well i've done it again...gone from a Hero to a Zero !!!

here's how the meltdown happened. last week the much anticipated, at least by me, rally finally came. we made handsome profits on our BNI longs. we left a bunch on the table, because frankly i just don't follow trends too well. i jump around too much. also, because a lot of this rally is gov. meddling driven, not just fundamentals, and as such i really think it's getting to be over blown. anyhoo...

so on the first day of the rally, i went short GS. bad move. should have sold it the next day. didn't. shorted some more. should have sold that. didn't. end of the day i have a massive position in GS. looking at the charts it's looking bad. financials are rallying. i had some few chances to sell. take the hit, my head said. i couldn't pull the plug. net equity went from 38K to 32K to 26K...last chance, day trader status going underwater...didn't do it. it was horrible. my net equity went down to 18, then to 12K. i was so depressed. the weekend was one big bloodbath of drinking.

on monday i came to my senses. GS was supposed to report earnings on Tuesday. i thought they would be good. if good, i would have no money left, these puts would go to near zero. i'm not taking any chances. better to have something, rather than nothing. luckily, GS started going down Monday and i saw that it would continue going down for the rest of the day. i sold all of them around 4. not a bad sell...i was worried about any last minute jump ups.

the aftermath, they didn't report earnings. don't know why. no news on that. they went down just a little bit more the next day in the morning and then a massive reversal. i sold on monday and since then they have broken 100 conclusively. my puts would have been worthless. thank you GOD>, u saved my worthless ass.

PHEW !!!

Wednesday, March 11, 2009

the lord giveth...the lord taketh

it's funny but whenever i fuck up i start thinking about GOD> and i couldn't have fucked up any more royally than i did today. a.) i didn't collapse my GS short yesterday, even though it was running like a rocket in a screaming up market, b.) i didn't collapse it first thing this morning (actually i tried, but it ran up 2 ducks in 30 secs, it is near impossible to see or react to such runs...i could have collapsed it then, but i dreamt it would go lower at some point...dream me a river :), c.) i shorted GS some more at 10 am for a short short trade, then got distracted and didn't sell for a small profit and watched it run away some more...basically the story of the day...GS running away. fucker.

anyhoo, i scalped it a little in the middle of the day, but the rest of the day i was out of it. i had a GOLDEN chance to collapse my earlier 10 am trades for small losses. my scalps would have covered that. then i could have reshorted GS at much higher levels, cause i could see that it wasn't going to die today...costly mistake.

now, i can only hope that GS goes down to 90 at some point. or AIG could file for bankruptcy :))

to distract me i will watch a foreign movie tonight. or cry.

Tuesday, March 10, 2009

great day for bulls

it was a great day for bulls. the rally we had been waiting for the last week, finally arrived.

when i checked the futures in the morning and saw them up 100, i had a feeling we would get a killer day. mentally i set my BNI call sell levels for 53.5 / 54. unfortunately, i was in a meeting all day and that distracted me so, that i sold early. the people next to me must have been wondering what's with all the charts. i left at least 2 points on 4k shares = 8k down the drain and all i had to do was watch a fucking computer screen all day. it would have been that easy ;/.

i scalped GS for some cash in between, other than that, the meeting consumed me. it was one of those days where after the initial runup there is very little move to the up or down side. the day is mostly done. i shorted GS in the afternoon, when it was up around 14%. i could have collapsed the trade later, but got too greedy. later it ran away from me...so i am kinda worried. GS is fairly oversold and that fucker can move. i will sell it ASAP tomorrow on any weakness. oh, i also shorted X for a low volatility end of the day (EOD) play.

otherwise, it was a great day. great profits. some beers are in order :)

Monday, March 9, 2009

slow day

woke up late, had a hangover, since i am trying to quit smoking, so i didn't feel like trading, but i still kept on checking the charts / prices, because i am a pro. and finally around 3:20, i got a good feel for the market. unfortunately, it said go short, but the market was already down and i just wasn't feeling it. i wanted to go long, which i did on BNI. not the best entry price on the first buy, but i thought it might spike at the end of the day, which it didn't.

i am holding a very large position as you can see and i have butterflies in my stomach. i feel fairly confident, but the tape action has been pretty negative for some time now. too many people are expecting the short term pop. anyway, tomorrow's a new day. it sucks that i have an all day meeting. it's like every critical day, i have work related shit blocking me.

Friday, March 6, 2009

if i was as good at macking chicks as i am trading...

i would be FUCKING BRAD PITT !!!

look at my trades. serously, look at them ;-/

the sell on my BNI longs was put in the system the night before...i hit it on the head...only a differential of .25 from the absolute top....how awesome is that ?/

i got back to work and looked at my quote station and it was a sea of red....my heart sank...i looked at the BNI graph and saw that it had gapped up at open...feverishly, i checked my trades executed window...LA LA LALA !!

the market tanked the rest of the day. due to my massive profits on BNI, i am now once again a full fledged DAY TRADER. yay!

i bought some BNI longs in the afternoon and to test / flex my day trader muscles...i entered into a quasi irrational GS long. i made money on both and collapsed them both, since now that i am a DAY TRADER, i don't need to take the unnecessary risk of holding over weekends.

2 weeks to options expiration this month....get ready to kick ass...cue techno !!!!!!

Thursday, March 5, 2009

jammin...but not so jammin'

like i said yesterday, my gut feeling was yelling long, but i was short BNI at the close of the day, with a bad strike price and not the best buy levels. so i was kind of sweating it yesterday night, but when i woke up this morning and checked my computer, surprise surprise, the futures were down quite a bit.

i wasn't sure why, but i didn't want to hold on to my shorts and sold them straight away at the open, although i didn't get the best open prices, but i mean BNI gapped down over $2...which is quite a lot and i thought don't be greedy. then i dressed up and zoomed to work.

i get to work and the whole market is tanking bad. GM is dead, which is the official excuse. but all traders knew that GM had been dead for a while. i don't know why, but the market went down hard and it stayed down hard all day. very little chop. just downward trajectory. i had a feeling we would retest the lows one more time, before we went higher and i think this day was it. should i have held on to my BNI's ? honestly, i didn't expect such a big day down on large volume and no big reversals of any kind. very surprising.

so, being the dolt that i am, i decided to go long. usually on such major drops i wait for the end of the day to enter...but, i broke the rule and bought BNI calls around 11 and then some more just a few minutes later (that's a big trader's no-no) and bought some more 2 hours later. basically, i used up my whole account to buy BNI calls. how do you spell BAD MOVE ;/

actually, i am not too worried...stocks generally held up much better than the index's point drops show. i bought BNI pretty near the bottom and the last hour's action was OK...it didn't gap down a couple of points on me. and i'm still feeling LONG...this is bullshit overselling...i just hope i have the balls to hold this position for longer than a day...but i doubt that :)

the only bad news is that i have to travel for work tomorrow and will be out of action from 10-11 atleast...peak hours. i really wanted to watch the opening tape...because, you know what we say, fuck gut feeling...the TAPE is GOD> or this may be GOD>'s way of telling me something......HELP !!!

i'm really starving for some low down, smoky, drinky, fun :p

Wednesday, March 4, 2009

i'm back

ok like (toss my black hair) i thought this blog was a waste to time, nobody reads it and i just blabber on and on anyways....it's not like i post any useful trading ideas or thoughts....or atleast i don't try to....haha....but then i got an email from these ad's people and they had 150 hits from my pages....so naturally i was impressed....my other blabbering sites rarely break 2-3 a day. so i decided to continue the good work and keep on posting.

as for the TRADING...i never STOPPPEDD.....and i've been kicking ass. i started out with 50K got decimated to 3k and have resurrected it from the ashes of November to 25 K. I KICK ASS, SEROUSLY>

basically, i have been shorting stocks, but a couple of longs in there also. the main thing that has changed about me is my willingness to cut loose my dogs. if a position runs against me i watch double intently and close it as soon as possible, even for a loss. before i would hold on hoping for dear hope it would come back. no more. just a few days ago, my MON long got crushed overnight...in the morning futures were down 100+ on the dow and i thought it would get crushed....and sold a few minutes into the open. i just didn't want to take the risk. better to lose 2K than lose 4K and frankly when i am well tuned into the market i can easily make 2K in a day. so i don't hold on to the dogs anymore.

today was a good day....i had gone long yesterday, because i felt everything was oversold and i bought right at the end of the day for seriously killer prices. even so i was stressed last night....the selling pressure is insane right now. i get to work, check the stat's....HOORAY....futures up big time....i calculate sell levels, decide to sell at the open, i was afraid of the fade, and thought if the fade ain't that bad, i can re-enter my long's.....i was bullish about the day.....so i get good sells at the open, 9:32 for X and 9:36 for BNI and i'm LIQUID....how's that for fast trading !

rest of the day i spent watching the market. i felt things overall would go long, but was so afraid of the afternoon drop, i ended up not buying anything. because my account is still under 25K, i only had one trade for the day.....otherwise you know how i play the chop....so i have to double think everything. i really wasn't feeling it, but like a bonehead i shorted 20 BNI at 56.75 at 1:19pm....jesus christ an afternoon trade....before 2pm....what an amateur trade. BNI went up $1 duck for the rest of the day and ended the day back at my entry price. actually, i really didn't like this trade at all and i am still feeling long inclined....i wanted to get rid of it, but also i didn't want to waste my day trade....near the close it was fluttering right around my buy level....i set it to sell for what i bought it for....it was very close, but nobody took my bait....WTF, i'll just hold it overnight, if i take a hit, i take a hit. fuck it.

i pray to the futures god's to be kind to me, and give me an intial drop or even better for some european bank to go belly up or some other kind of human misery to crush the stock markets.....wicked aren't i ;p