FAQ

The act of buy or selling a security to open a position and closing that position on the same trading day. You should only day trade if you have a back tested strategy, supported by data, that generates greater annual returns than the S&P 500. 

If you complete more than 3 day trades within a 5 day trading window, you're required to maintain a minimum account balance of $25,000 in order to continue day trading. Don't try to circumvent this rule by using an offshore broker. This rule was put in place to protect novice traders from over leveraging and wiping out years' worth of savings in mere minutes/hours. I would advise you to have at least $30,000 in your account before day trading. This will give you a $5,000 buffer in the event of a draw down. 

The act of buy or selling a security to open a position, and holding that position overnight for days, weeks or even months. This is more commonly referred to as investing. My strategy doesn't utilize swing trading. 

​The market is open from 9:30am -4pm EST Monday –Friday. There are holidays when the market is closed or closes at 1pm.  Pre-market and after-hours trading is available but liquidity is often very low because there aren’t a lot of buyers or sellers trading after hours. We advise you to not trade during these times. It's also important to note that market orders will not execute during these times nor will stop losses. You must use limit orders with extended hours enabled to execute a trade.

A long or bullish position indicates a bias to the upside. In this scenario, you're 'long' if you buy the stock at a lower price and hope to sell at a higher price with the difference in the purchase price and the sale price being profit. The vast majority of day traders have a long bias in the market, as overtime, the market itself has shown a bias to the long side. Again, this is traditional buy low, sell high. The biggest perk to long positions is their risk to reward. In theory, a stock has no limit in how high it can go, meaning there is no limit to your reward/profit, however there is a limit in what you can lose in that a stock price can't go below zero. I personally don't use a long bias strategy.

A short or bearish position indicates a bias to the downside. In this scenario, you're 'short' if you borrow the stock and immediately sell the stock at a higher price with the goal of repurchasing at a lower price with the difference in the sale price and the purchase price being profit. Very few day traders have a short bias in the market as it's a bit more difficult to execute due to some stocks containing borrowing limitations, that's if there are shares available to borrow at all. Additionally, you incur borrowing fees that can eat into profit and lastly, the risk is limitless (you lose money when the stock goes up and stocks in theory can go up to infinity) and the reward is capped (you make money when the stock goes down, and a stock price can't go below zero). Despite these limitations, I day trade using a short bias strategy.

When day trading, you'll likely trade on margin (accounts typically subject to $2,000 minimum in order to qualify for margin account). Margin is something you typically have to apply for and is required to short stocks. Margin simply means your broker will lend you money by giving you leverage to trade with a greater amount than what is actually in your account i.e. 4x. For example, if you have $30,000 in your account, and you have a margin account, you'll have up to $120,000 in buying power that is subject to broker specific limitations for things such as a concentrated position. You're typically not charged a fee for utilizing the levered buying power during the day, but should you hold overnight (swing trading) you will be charged based on the margin rate. When you short a stock, you're charged a borrowing fee for the night despite closing (also called covering) the position that same day. Your broker will share the borrowing fee with you prior to entering the position. Aside for the additional buying power, the other positive related to margin accounts is the broker doesn't require you to wait 1-3 days for the actual trade to settle before trading again with that cash. Your account is credited instantly for the sale/cover and you can continue to trade as much as you wish that day. However, your broker will require you to wait until such trades have settled to withdraw that cash. 

When you trade in cash account, the amount of money in the account is exactly the same as how much you deposited.  When you take a trade, you have to wait T+3 (Transaction + 3 days to settle).  Sometimes it may be quicker, but in general stocks can take up to 3 days for transactions to settle.  It’s like waiting for a check to clear.  There is nothing you can do while you wait. I advise against using an account such as this to day trade with. 

A type of trading that focuses solely on the price of the stock, chart patterns and technical indicators before entering a position. This is generally what you'll see day traders utilize to trade stocks and why trading can be so difficult. There are thousands of patters and indicators that you can utilize and include in your trading strategy. 

These are what 99.9% of day traders utilize and can be the basis for entering or exiting a trade. Each candle represents a specific amount of time that is determined by you (time frame of your chart). Let's assume you're looking at an intraday, 1-min chart. This would mean each candle stick represents one minute of time. That candle stick provides you 4 key pieces of information. 

1. Open Price 

2. Close Price

3. High of the period price

4. Low of the period price

Line/bar charts can communicate this information effectively hence why day traders exclusively use candle stick charts. Candlesticks are often color coded as well. Where a green candle indicates the close price was above the open price (bull signal) and whereas a red candle indicates the close price was beneath the open price (bear signal). 

Contrary to technical analysis, fundamental analysis focuses on key performance indicators of the company. These key performance indicators can change depending on the industry and are usually found within their financial statements such as the statement of cash flows, balance sheet or income statement. The end result is typically an analysis (likely complex) that will give you a long or short bias based on what you find. 

The current market value of all of a company's outstanding stock i.e. current share price multiplied by total number of shares. Stocks are often categorized and traded differently based on their market cap. 

• Micro-Cap - Less than $300mm, opportunity to be very volatile

• Small-Cap - Between $300mm & $2bb, still subject to a lot of volatility

• Mid-Cap - Between $2bb & $10bb, subject to volatility but a bit less than micro & small caps

• Large-Cap - Greater than $10bb, subject to the least amount of volatility

Refers to the # of shares a company has issued to the public that are available for trading. In supply & demand terms, this is the supply side of the equation. Therefore, companies with smaller/less float, are subject to much more volatility than those with higher float. 

This is the % of the float (defined above) that has been borrowed and sold by short sellers. As a reminder, short sellers benefit by decreases in price.

Represents an event in which a spike in price to the upside causes outstanding short sellers (think short float) to cover (close) their positions. The only way in which they can do this is to buy shares of the company. Buying (demand) shares of the company drives the price up even further often resulting in an even larger, more climatic move.