Effective Trading Strategy for < $25K Accounts

R

rubbles88

Hi. I would like to ask those with accounts less than $25K about your trading strategies. We are all aware that we can only make 3 daytrades in a span of 5 days due to the new SEC rule so we need to develop a strategy to trade.

Due to the risk of being stopped out during the day and being hit with a daytrade, I get in a position at the last 15 minutes of the trading session or after hours. The reason for this strategy is to minimize time holding a position because I can exit the position, if necessary, the next day. Of course there is the risk when holding positions overnight. I usually enter positions in stocks that showed strength (long) or weakness (short) on good volume during the last 30 minutes of trading and look for follow through at least early the next day when I can already exit with the trade not being a daytrade. Since I implemented this strategy last month, it seems to have worked alright.

Of course, swing trading is the other option which I do from time to time.

johnny
 
I had about 20K before the rule came. I was lucky to trade my account over 25K and don't have the problem. any more. the way I did it was to pick my trades carefully and make sure the trade has a strong support so i don't have to be stopped out.
 
the only effective work-around is to switch to emini futures right now. Later when single stock futures get going that might be an option as well, provided there is enough volume.

So I recommend that you study ES and NQ. No SEC involvments, terrific margin and better tax treatment than stocks.
 
Vikana... you forgot to mention bigger losses. It only takes a tick to win/lose 12.5 bucks. Say your system goes down or something, you cant exit a position and puff! Gone with the wind. I think swingtrading is the only option with less than 25k.

Good luck though should you go w. ES

Alex
 
Vikana... you forgot to mention bigger losses. It only takes a tick to win/lose 12.5 bucks. Say your system goes down or something, you cant exit a position and puff! Gone with the wind. I think swingtrading is the only option with less than 25k.

Good luck though should you go w. ES

Alex

P.S. I thought about the same thing but I paper lost my 4k (margin for the contract) in like a week. It got below 3.5k ...:(
 
Originally posted by neo_hr
vikana... you forgot to mention bigger losses.
More...
neo_hr,

Yes unfortunately leverage works both ways. But if you're up against the 25k limit I just don't know any other solutions.

a historical note on levarage: I started day trading in 1998 with the full S&P contract (when the multiplier was 500). I still consider it a miracle that I didn't blow my account - I actually made money which was probably beginners luck :)
 
This is an interesting issue that keeps arising. My initial reaction has always been you shouldn't be daytrading if you don't have $25k. You can't take enough of a load to make real money but you have the same data and other expenses as a big hitter, plus commissions eat you up on <1000 share trades. I still think the best strategy with this size account is swing trade using IB, and try to hang onto enough winners in a strong market to build some size.

I think vikana has the next best approach. The e-minis are great trading vehicles, you can do it for next to nothing using IB and QCharts, you cna learn and make real money. With a $20k account, you can easily trade a 2 lot of ES or NQ. The big money here comes from catching a trend move and riding it for three or four days, but I know no one will belive me or else thinks that's too risky.

Next I would suggest options. Not for daytrading, that is a loser's game, considering the spreads and commissions. Learn spreading strategies, learn to spot oversold or overbought situations, and you cna make surprising amounts of money with defined risk.

Finally, for those who simply have to daytrade stocks, I suggest that good daytrading is not an everyday endeavor. Only trading two or three times a week is probably a good thing, although I'm not sure how the T+3 settlement affects you. I find that most of my losses come from pushing things in a nothing market. Learn to recognize the high potential days and trade them exclusively. How do you recognize them? Good question. Look at the daily charts fo the indexes, and watch for breakouts. Watch the A/D and strength of key sectors during the day. Hint: it's not a high potential day if A/D is balanced, TICK is crappy and XBD/BKX/SOX indexes are hacking around. It's also not a bad strategy to stick with a high beta stock all day on a runner day, rather than taking that whopping $.25 profit on first resistance. So you may well be better off with these annoying restrictions.
 
neo,

There's risk of a system failure trading stocks as well, and an individual stock can have a larger percentage move than an index is likely to. In general, I find globex more reliable than Level II, despite the problems IB has had recently. Not a bad idea to stay away from crazy days like FOMC meetings though. Also, you can always put in a hard stop when your trade is confirmed, so that you're covered if you go down.
 
Thanks for all your responses. FYI, I use IB so commission costs is not a big factor.

AAA and neo, I agree that swing trading seems to be the best option which I do from time to time I see a good setup.

AAA, you bring up a good point about daytrading. Because we are still allowed 3 daytrades, it is important for us with small accounts to be aware that we can do limited daytrades when we recognize a quick move like SONS (from $6.80 to $8.30) yesterday for a quick profit.

vikana, I don't know anything about e-minis. Do you have any site where I can start to learn about this?

johnny
 
Rubbles,

Here you have my FUTURES bookmarks. i tried mailing you not to waste webspace here but I couldnt. See if you can find anything here.

Good luck,
Alex
 

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