NOTE: Effective 4 June 2026, the U.S. Securities and Exchange Commission has removed all "pattern day trader" restrictions. We are leaving this article here as a reminder of what used to be.
Could you accidentally become a pattern day trader?
Most traders are vaguely familiar with the “pattern day trader” rules. When it comes to the details of these rules, this is where people can get a little lost. So let’s look at some situations that tend to be confusing. Then you will be confidently able to place trades without worrying that you might be breaking the rules.
As a reminder, you are considered a Pattern Day Trader if you meet all of the following three conditions:
- You have a margin account
- You executed 4 or more day trades within 5 business days
- Those trades represent more than 6% of your total trades during that period
On the surface, this is simple enough to understand. Where things get tricky is in the definition of a “day trade”. The examples below will go a long way to clarifying things.
Example 1: the classic day trade
- At 10:00 AM Wall Street time you bought 100 shares of ZZZ.
- At 3:30 PM you sold those shares of ZZZ.
This is the basic idea of a day trade that we all know and understand.
Example 2: a stealth day trade
- At 10:30 AM you sold 100 shares of ZZZ that you already owned.
- At 1:00 PM you bought 100 new shares of ZZZ.
This is also considered a day trade, even if the shares you sold had been in your account for multiple days, or months, or even years.
Example 3: multiple Buy orders, then one Sell order
- At 9:30 AM you bought 100 shares of ZZZ.
- At 10:00 AM you bought another 100 shares of ZZZ.
- At 11:45 AM you bought another 100 shares of ZZZ.
- At 3:00 PM you sold all 300 shares of ZZZ.
This counts as one day trade. There was one “round trip” here. We will explain the concept of a round trip below.
Example 4: one Buy order, then multiple Sell orders
- At 10:15 AM you bought 300 shares of ZZZ.
- At 2:30 PM you sold 100 shares of ZZZ.
- At 3:00 PM you sold another 100 shares.
- You kept the remaining 100 shares in your account.
This is also one day trade, for the same reason as in the previous example.
The round trip:
In the previous two examples there was one round trip involved. The exchanging of money for shares went in one direction and then reversed. And that reversal happened only one time. The number of orders used to enter or exit the position doesn’t matter — what counts is the directional change.
Example 5: Alternating buys and sells
- At 10:00 AM you bought 100 shares of ZZZ.
- At 10:30 AM you sold those shares.
- At 11:00 AM you bought 100 new shares of ZZZ.
- At 11:30 AM you sold 50 of those shares.
Here we have two day trades. The first round trip ended at 10:30 AM. The second round trip was triggered at 11:30 AM. That the second purchase of ZZZ was not fully closed is irrelevant. The key is the change in direction.
What about trades that are made outside of official market hours?
Example 6: after hours trading
- At 2:00 PM you bought 100 shares of ZZZ.
- At 16.15 PM, after the official market close, you sold the shares.
This counts as a day trade! The Pattern Day Trader rules are based on a calendar day. It makes no difference whether you are trading during the regular market session or pre-market or after hours.
Many brokers have created automated alert systems to let you know when you are getting close to the limit. It is still a good idea to have a good knowledge of the rules so that you know what you can and can not do.
Do you know about the Swingex Index? See when conditions are best for getting into a trade.