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Trading 101: What is a 'Day Trade'? - YouTube
Channel: ClayTrader
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yay for government regulations today
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we're talking about the pattern day
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trader rule but more specifically what
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actually is a day trade what counts as a
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trade day trade what doesn't count as a
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day trade let's quickly go over some
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broad background information here day
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trading rule all this started in 2001 my
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guess would be that's one you know
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internet online brokerages really
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started to pop up so the government
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decided to step in and implement the day
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trading rule which states that you may
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have three day trades per five day
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rolling period now rolling period let's
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first just knock that out of that what
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does that mean it means that you can't
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just do all your day trades on a Friday
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and then on Monday you have all three
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day trades again that's what I remember
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way back when I thought I'd you know
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kind of manipulate the system and try
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that but now rolling period means that
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if you do three on Friday well then you
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got to wait until Friday before you get
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those day trades back because it's a
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rolling period so again doing three day
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trades on a Friday does not mean that on
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Monday you all of a sudden get your
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three day trades back so you're allowed
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three day trades within a five day
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rolling period but that brings up the
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question out ok I get rolling period I
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get you know that how the five days
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works but you get three day trades what
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exactly is a day trade what counts as a
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day trade what is not a day trade now a
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lot of people okay yeah a day trade you
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buy and sell within a single day but
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there's a lot of scenarios out there
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that all of a sudden create kind of huh
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well how it so that's what we're going
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to talk about here those different
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situations so let's just first start
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with some basics in terms of what a day
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trader is or what a day trade I should
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say is from the very top let's first
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just get a definition of day trade out
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of the way and then it will really kind
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of dig in to define all these different
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parts of it any opening transaction
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closed out in part or in full and the
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same day is counted as a day trade this
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includes
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option transactions so a day trader as a
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whole same day that's the key word here
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everything's got to be going on in the
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same day now within this
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this does include pre and post-market
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trading so for example we'll go on
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Eastern timeframe you buy well let's
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assume first that your broker even lets
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lets you trade and before and after
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hours but your broker does and you buy
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some shares at 9:00 a.m. EST this is
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still post Mart or pre market you then
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sell at will say 4:30 p.m. est this
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again is post market that would still be
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a day trade even though it didn't happen
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during the quote-unquote you know normal
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trading hours of 9:30 a.m. to 4:00 p.m.
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Eastern Time that would still count as a
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day trade so same trick same day does
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include pre market and post market next
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part of the definition that I want to
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focus on opening transaction that just
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means initiating a trade getting
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something started I don't really like
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opening transaction I think we can
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define this a little bit easier so what
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we're going to refer to it as is think
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about opening transaction as entering a
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trade so I'll just put enter you can
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look at it as initiating the trade
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getting something started hey I think
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this is going to happen I want to get
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into the trade I want to enter into a
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position so that's what opening
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transaction is being defined as whenever
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you enter into a trade not to state the
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obvious here it's all your intelligence
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but exiting a trade is not the same as
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entering right so big focus here is when
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you are entering into a trade our first
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example here I want to just remind you
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of a few things
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blue remember blue is representing
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entering the trade in this case we are
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buying so hey I think that stock is
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going to go up I think stock ABC is
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going up I want to enter into the
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position I want to buy so you buy 500
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shares of ABC you sell 250 of ABC you
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sell 250 of ABC what do we care about
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going back to the definition we care
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about the entry that's what everything
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is based around so you entered once yes
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and then you did have two trades down
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here but were these entry or exit trades
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well they were selling therefore they
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were exiting trades so that's that
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doesn't matter because
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everything is based on the opening
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transaction or when you are entering
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into the trade so because you entered it
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once this would be one day trade sure
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you got out on a couple different orders
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but entry one time therefore it would be
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one day trade our next example we're
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still going to be working with 500
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shares but a little bit different so
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let's go through it you buy so you enter
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in 250 shares you then decide I want
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more shares so you got to enter in more
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so you do another buy you enter in again
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for 250 shares so you have one entry
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order then you have another entry order
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and then you sell it once so how many
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day trades is this well what is
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everything revolve around it revolves
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around when you're entering into the
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trade and because you entered into the
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trade once and then twice this would be
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two day trades I realize only sold at
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once but the rule does not care about
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the exit here is about where do you
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enter in how many times you enter in
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this case you entered in twice therefore
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two day trades now this one sucks pretty
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bad so let's just let's get into it
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though again we have two entries you are
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buying 250 shares then you decide to
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enter again so you buy 250 shares when
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you go to sell you sell 251 now the
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thing here is well how many day trades
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is this well it would only be one day
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trade if that number was 250 because if
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that was 250 well you'd be matched up to
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this one that's 250 shares and then
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everything's done but because it's 251
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the way the broker looks at it is
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alright so you want to sell 251 so it's
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got a hop up here and take her missile
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there's 250 shares all 250 though is
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pertain to entry order 1 but then you
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still have that one extra share out
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there so in order to go get that chair
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it's got a it's got to dig into this
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order so now it's digging into this
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order and this order pertains to that
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entry so therefore this is still 2 day
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trades
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because the broker has got to go fine
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all right this person wants to exit out
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251 shares
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there's only 250 shares right here which
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is part of transaction 1 but it's got to
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go down dip into that one therefore
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still to day trade so be aware of that
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think about well where how many orders
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is my broker and have to dip into again
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if you just one just because you buy in
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twice doesn't mean that you're going to
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end up having two day trades a way to
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avoid this is just having sold this was
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250 shares well then the broker would it
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only needed to get into this one so in
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that case that would only be one day
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trade because it did not need to dip
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into this transaction at all but because
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you did because of that one extra share
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two day trades pay very very close
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attention to this one very very
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important so let's just first go through
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the scenario hopefully now you're
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getting the point
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all right blue pertains to bind which
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means when you're entering in so you
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enter into this stock ABC three separate
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times so your first order so the order
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of them this was your first one right a
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pair then you did it again down here so
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that was your second in the sequence
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your third in the sequence was down here
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and then you go and you sell 400 shares
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so how many day trades is that maybe
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you're thinking well perfect
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this person was smart they sold 400 here
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they had 400 so you match these up that
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is one day trade no this is actually
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three day trades
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how can it be three day trades you sold
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400 it matches up perfectly well the
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problem is the way brokers match it up
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is they go in the sequence so in order
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to fulfill this they don't start most
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recent they start way back here so they
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have to dip into this let me change up
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the colors right here so they have to
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dip into transaction number one up here
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so we'll start remember you don't want
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to fill 400 shares so they come up here
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well then that transaction 1 gives them
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a hundred shares so that's one day trade
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well then you still got 300 left so then
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you got to come down here to transaction
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2 well that's going to give them 200
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more
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but you still have 100 shares left now
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you're dipping into transaction number
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three well that gives you the final 100
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shares but because you've had a dip into
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not only this one this one and that one
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therefore this whole thing is three day
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trades so again it's matched up with the
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most in the sequential order
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so yeah that's four hundred but in order
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to get this four hundred your broker is
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going to hop back into the first entry
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order of the day which in this case was
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100 and then they go in sequential order
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so keep that in mind if you have a bunch
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of entries and then you think well
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you're I'm matching up the orders
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perfectly well just be aware of how that
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all works out again they start with the
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one earliest in the day and then work
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sequentially throughout the rest of the
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day in order to match up where they're
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going to fulfill the shares from this
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final example just something to be aware
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of because then it's it could
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potentially open you up to all these
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other scenarios that we just talked
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about and that is scenario where I want
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to buy 500 shares of ABC so I want to
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enter into 500 shares up you know stock
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ABC so let's just say that you know you
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want 500 shares so that's what's sitting
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out there you put in what we would call
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a limit order and then all of a sudden
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your broker either sent you an email or
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you hear a ding something button you say
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oh ok with these 500 orders I just got
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300 shares now in the world of trading
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this would be called a partial fill so
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you got a partial fill and just for a
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little bit more sequence let's say you
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want all these shares at $25 so I want
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500 to $25 ok I just got three but iva
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says still need another 200 shares left
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then all of a sudden you get another
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confirmation from your broker hey you
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just got a hundred more shares so again
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this would be another partial fill but
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the question becomes okay you wanted 500
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but now you're getting the the shares in
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chunks you're not getting them all in
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one get go you got 300 here you got 100
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here how many day trades is this you
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know what what's setting yourself this
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is still considered one entry because
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it's all part of the same order here
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name order being the keyword here
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because if something changes and let's
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just say the price starts to move and
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you really want it I want ABC and not
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only do I want ABC I want all 500 shares
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so if you then go and either cancel some
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brokers might call it modify so if you
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go to cancel or modify your order in
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order to get the final 100 shares guess
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what you just did you just created a
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whole new transaction so this would be a
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whole new buy order right here right
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because you're not no longer saying I
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wanted it 25 you've cancelled and
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modified the order to say you know I
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want in at let's just say you know when
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I'm willing to pay 25 dollars and 15
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cents well appear it was 25 now it's 25
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15 these are two different entries you
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are now changing what you want in it so
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by cancelling modifying changing like
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said all brokers may have different
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terminology but the point being if you
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manipulate this order then you are
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setting yourself up for another
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potential multi day trade in the same
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day so just be aware of that I mean if
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you just let this order sit out here and
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sit out here and maybe you only just get
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400 shares well then it is what it is
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you know that that's partial orders
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partial fills I should say are not going
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to screw anything's up the only time you
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start to change things is if you cancel
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and modify that order in order to get up
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to you know the you know the main amount
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of shares or contracts you know if
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you're trading options that you want so
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you know I'm not going to say to avoid
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cancelling or modifying orders sometimes
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it very well may make sense for you to
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do that but just be aware when you are
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canceling modifying because you're only
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getting partial fills you are opening
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things up to all these other different
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scenarios that we talked about so keep
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that in mind - one final thing to talk
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about shorting it applies to that also
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but everything is just flipped around so
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what we talked about instead of you know
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buying first in order to enter into a
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trade those would all just be cells if
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you understand shorting that that should
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make perfect sense to you if you're
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brand-new then don't even worry about
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shorting right now just first master how
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to go long and how to buy into things so
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but if you are a little bit more
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advanced shorting definitely applies
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every
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thing like I said is just flipped around
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and as you should already understand
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instead of buying to enter into a trade
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you are just selling to enter into a
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trade
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I'll find a few things here to wrap up
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first if you're thinking oh man this
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stuff is just what's going on I do a
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video of how you can avoid a lot of this
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stuff it's not perfect but it does give
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a lot more flexibility than what the the
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day trader rules you know represents and
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kind of pigeonholes you into so I'll put
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a link in the description box below if
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you're curious on that also remember
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just be aware of all the kind of tiny
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things that may be out there for example
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like I said if you cancel or modify an
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order that can change up the landscape
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of your situation
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remember the sequential order you know
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that your broker is going to start up at
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the top the first entry of the day and
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then work from there again something
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that can totally change the landscape
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you may be thinking you're getting
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creative by selling a certain amount but
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you know match that up with the order of
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which you entered into the trade for
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that particular day if you found this
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video helpful please click that like
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button you know comments are always
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appreciated shares already always
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appreciated but you know the easiest way
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to take lay thanks for doing this
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please keep making more you're not
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wasting your time easiest way to tell me
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that is just to click that like button
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so hopefully this can get quite a few
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likes and hopefully this all made sense
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