A pattern day trader PDT is a regulatory designation for those traders or investors that execute four or more day trades over the span of five business days using a margin account. If this occurs, the trader's account will be flagged as a PDT by their broker.
Trading pattern recognition Share Pattern recognition is one of the most versatile skills you can learn when it comes to trading. This is the branch of technical analysis that focuses on finding price and often volume patterns.
The PDT designation places certain restrictions on further trading; this designation is put in place to discourage investors from trading excessively. Any type of trade will be accounted for, in terms of this designation, as long as they occur on the same day.
If there is a margin call, the pattern day trader will have five business days to answer it. Their trading will be restricted to that of two times the maintenance margin until the call has been met. Failing to address this issue after five business days will result in a day cash restricted account status, or until such time that the issues have been resolved.
The Bottom Line In technical analysistransitions between rising and falling trends are often signaled by price patterns. When a price pattern signals a change in trend direction, it is known as a reversal pattern; a continuation pattern occurs when the trend continues in its existing direction following a brief pause. Technical analysts have long used price patterns to examine current movements and forecast future market movements.
These rules are set forth as an industry standard, but individual brokerage firms may have stricter interpretations of them. They may also allow their investors to self-identify as day traders.
The potential for a higher return on investment can make the practice of pattern day trading seem appealing for high net worth individuals. However, like most practices that have the potential for high returns, patern trading potential for significant losses can be even greater.
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Chart Patterns \u0026 Trend Action for Forex, CFD and Stock Trading
Securities and Exchange Commission. Accessed July 30, Compare Accounts.