Should I Hold Overnight?
I've noticed that many of our smaller account traders out there are having a hard time picking a good stock to buy when being restricted to three day trades a week or when having a T+3 Cash account. Firstly, I'd like to say that there is a way to get more day trades weekly with an account less than $25,000 and that is explained in my broker strategy article.
But for those who are stuck to just one T+3 cash account or a margin account without the ability to pattern day trade, we will take a look at your options and a few strategies you can follow to ensure you're setting yourself up for the best trades that fall within your restrictions.
For T+3 Cash accounts
There isn't much room to work with on Cash accounts except taking small positions on a broker like robinhood. If you're trading T+3 cash on a 5K account, technically you can make 5 day trades a week on $1000 positions each trade, if done correctly. This is because your cash settles 3 days after you sell your position, but you are not limited to the amount of "trades" you make with settled cash. Day trades are only limited on margin accounts.
A prime example of a broker that is useful on a T+3 Cash account would be Robinhood. Due to the fact that Robinhood does not charge commission, this allows for smaller trades to be worthwhile. If you have $10,000 on a Robinhood cash account you can make 3 day trades every 3 days with $3,300 positions due to the fact that your funds would settle 3 days later. OR, you can make 10 day trades a week using $1000 positions as you are not limited to the amount of "day trades" you can make.
Let's not forget that having Robinhood cash allows you to size in at as small of a rate as you'd like, without worry to the amount of commission tickets you receive.
For Margin Accounts Using 3 Day Trades Weekly
These types of accounts can be used more advantageously than a T+3 Cash account due to the fact that you may re-use your capital entirely after completing a buy/sell, as long as you haven't done this 3 times within a week. You're also allowed to make trades that are not considered "Day Trades." Where you buy the day before and sell the next day. Keep in mind that if you sell the next day and then buy another stock, that would be considered a day trade.
Not always recommended, but the fact that you have a margin account would mean you can go "all-in" on one stock, sell the same day and repeat the procedure. There's essentially a bit more flexibility on what you can do with a margin account than a T+3 cash account, but at the same time you're limited in the aspect of "day trades."
The most efficient way to use a Margin Account would be to avoid using day trades until you see a trade that would yield high potential for gains with a low chance of being stopped out. Also look for trades that have potential to continue into the next day. So if you do end up having to utilize a day trade, you profited nicely off the correct pick. Being in the correct pick is CRUCIAL to efficiently getting in and out of trades in a timely manner. Also, don't hesitate to take your 10% even if it's your last day trade. The trend can't be fought if it says down, regardless of how many trades you have left.