The Saturday Day-Trade: A quick guide to understanding the Round-Trip Rule.

This post is to help new traders understand the basic day-trading rule of completing a round-trip. It is based off a Reddit post asking why his day-trades were not 'counting.' Simply it was because he was not closing the trades on the same day he opened them.

Here is an example:

Monday 9:31AM: Bought 100 shares XYZ to open a trade.

Monday 9:47AM: Sold 100 shares XYZ to close a trade.

Monday 10:51AM: Bought 100 shares XYZ to open a trade.

Week Day-Trade Count: 1

Tuesday 9:31AM: Sold 100 shares XYZ to close Monday's trade

Tuesday 1:47PM: Bought 100 shares XYZ to open a trade

Week Day-Trade Count: 1

Notice that the trade must be closed on the same day for the round-trip to be completed to count as a day-trade.

Let's say I decide to go to Vegas on Saturday before the Patriots/Rams game to place a wager. ( I can neither confirm nor deny that this is going down.)

Of course I flew via Southwest Airlines (LUV). After all the stock just broke previous resistance a buy signal discussed here.

I made it back to Denver, but I was busted. My wife realized I skipped town without her. She's pissed and wants to go to Vegas now. Back we go.

My day-trade was complete, but we ended up in Vegas overnight. Since I did not close the new trade it does not count as a day-trade. It becomes a swing trade.

Opening trades do not count as a day-trade alone. The trade has to be closed. I hope my Vegas narrative helps clear this up.

As always, I'm available on twitter to help answer questions.

Why does the round trip rule matter? Because if you are trading under $25,000 in a margin account, you can be flagged as a pattern day trader if you make more than 3 round trips within 5 rolling trading days. I discuss a few ways to get around the PDT rule here.