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If you’re a new trader under PDT and using a margin account, you're putting yourself at an extreme disadvantage in mentality, trade management & opportunity cost.
Cash accounts are superior under PDT & those 3 reasons are the most important (imo) and here’s why:
A thread.
Cash accounts are superior under PDT & those 3 reasons are the most important (imo) and here’s why:
A thread.
1.) Mentality
Having only 3 DTs a week is extremely limiting, so you will want to make the most out of them. You will be more unwilling to cut losers early, as you will not want 1 of your limited trades to be an L.
This leads to bag holding and further loses.
Having only 3 DTs a week is extremely limiting, so you will want to make the most out of them. You will be more unwilling to cut losers early, as you will not want 1 of your limited trades to be an L.
This leads to bag holding and further loses.
On the flip side, this will also make you more unwilling to take small winners. You will fall into a trap of thinking that a 5-10% win isn’t big enough for your limited opportunities, which often leads to holding for too long and ultimately losing $ on a previous winner.
2.) Trade Management
3 DTs severely limits your ability to reposition yourself in a trade and take advantage of the opportunities presented. Tried to buy a dip but the price keeps on dropping? Well you can cut your loss, buy in later & sell later, but there’s 2 DTs.
3 DTs severely limits your ability to reposition yourself in a trade and take advantage of the opportunities presented. Tried to buy a dip but the price keeps on dropping? Well you can cut your loss, buy in later & sell later, but there’s 2 DTs.
Many new traders will throw their entire account into each one because theyre so limited. Why use 10% of my acc in each trade when I only have 3 opportunities a week? 99% do not have the risk tolerance to do this, and panic will start to seep in as soon as their entry turns red.
3.) Opportunity Cost
Only 3 DTs also just ties up your entire account for way too long of a period. Most new traders don’t have patience required, or the knowledge, to identify great setups. If they do, that setup can still fail
3 opportunities is not enough in a game of %s
Only 3 DTs also just ties up your entire account for way too long of a period. Most new traders don’t have patience required, or the knowledge, to identify great setups. If they do, that setup can still fail
3 opportunities is not enough in a game of %s
Pros for a Cash Account:
Cash accounts following a T+2 settlement period for your funds, will not have you trapped in the above examples. Splitting your account in half, and only trading with that half, will have funds available every day if you stick to it.
Cash accounts following a T+2 settlement period for your funds, will not have you trapped in the above examples. Splitting your account in half, and only trading with that half, will have funds available every day if you stick to it.
You can split your entries into 10% of your acc, and have 5 DTs a day to work with. Will you use them all? Probably not, but the thought of limited opportunities & the mental blocks that come with it are gone.
There are almost no downsides for people under PDT using cash accs
There are almost no downsides for people under PDT using cash accs
In summary - if you are still using a margin account while under PDT. You should probably switch ASAP.
Happy to answer any questions you might have.
Hope this helps some people!
Happy to answer any questions you might have.
Hope this helps some people!
