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Pattern Day Trading

Definition of 'Pattern Day Trader'

An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

An individual deemed a pattern day trader must hold a minimum of US$25,000 in equity in his or her account before being allowed to day trade. This $25,000 equity amount must be maintained in the account at all times because it addresses the additional risks inherent in leveraged day-trading activities and ensures that customers, before continuing to day trade, cover any losses incurred in their accounts from the previous day.

Definition of 'Swing Trading'

A style of trading that attempts to capture gains in a stock within one to four days. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders aren't interested in the fundamental or intrinsic value of stocks, but rather in their price trends and patterns.

To find situations in which a stock has the extraordinary potential to move in such a short time frame, the trader must act quickly. Therefore, swing trading is mainly used by at-home and day traders. Large institutions trade in sizes too big to move in and out of stocks quickly. The individual trader is able to exploit such short-term stock movements without having to compete with the major traders.

Definition of 'Wide-Ranging Days'

A description of the price range of a stock on a particularly volatile day of trading. Wide-ranging days occur when the high and low prices of a stock are much farther apart than they were the day before. Some technical analysts identify these days by using the volatility ratio.

Wide-ranging days mean the most to traders after a strong day of trading. One of these days after a sharp up- or downtrend can indicate that the trend will reverse. Extreme wide-ranging days generally portend a major reversal.