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How To Trade NUGT & DUST When You Cannot Day Trade: Become An "Overnighter"

|Includes: DUST, GDX, SPDR Gold Trust ETF (GLD), NUGT

The pattern day trading rules are some of the most misguided, ill conceived financial regulations to ever be implemented, IMHO. I cannot for the life of me understand, how they help small investors keep from losing their money. But since they are the rules, we must accept and deal with them. Thus there are many small traders who effectively cannot day trade as day trades are limited to three round trip day trade transactions in a five day period, if the account has less than $25,000 equity.

I Deal With The Pattern Day Trading Rules In My Margin Account

In my own trading, I do deal with this very issue as well. Even though I primarily trade from two IRA accounts where I have plenty of money so I am not restricted, my third account is a margin account that trades both futures and stocks. In my margin account I withdraw money nearly every week so that I am not tempted to over trade and lose the money. Since I can put futures contracts on using $1,000 to $3,000 of margin at a time, I only need $10,000 to $12,000 for the futures trades. Even if I have $25,000 in the account, any futures trade margin I am using will subtract from the $25,000 figure so I rarely can day trade stocks in the account. If I want to trade the stock market, I usually day trade E-mini Dow Jones futures with margins of just over $1,000. Every point the Dow moves up or down, I can make or lose $5. If I want to earn $200 per day I only have to catch 40 Dow points during the day (a relatively easy task). Also, with futures there is no restrictions on going short like there is in an IRA. Still, I do sometimes trade DUST or NUGT or some other stock in my margin account which I have named my "crazy account". That is because my crazy account only buys at "crazy cheap prices".

When my first IRA has purchased DUST or NUGT shares and has reached the $20,000 limit that I have set for my core shares, I then use my 2nd IRA account for my day trading account and buy as many as 400 shares of NUGT in the $50s, or 600 shares of DUST in the $30s. Once I have fully loaded up my trading account, sometimes NUGT or DUST will fall even further than I had predicted and get to "crazy cheap prices". These prices are so low that the probability of making money on these shares in the next couple days approaches 100%. That is when I buy shares in my margin account where I cannot day trade.

You Are Left With Two Trading Choices

If you do not have $25,000 to day trade in a margin account, and more likely are trading with $11,000 to $12,000, then you have two choices.

A) You can wait for crazy cheap prices to buy DUST or NUGT shares. They occur about three times per week in each, so you can buy 6 times per week (about once per day). Right now, NUGT under $50 is crazy cheap prices and one can buy in the whole 200 shares once we trade under $50 during the day. Or:

B) If trading NUGT with $11,000 or $12,000 making a 200 share limit, you can buy 50 shares when you reach the level you have determined is near the low of the day. If you pick it right, you can add another 50 shares on the close. If you pick it wrong and NUGT falls further putting you into a small loss on your first purchase, you can buy an additional 50 shares at lower prices and average down. In either case you will still have money to buy an additional 100 shares to try and bail yourself out if NUGT falls further the next few days. Of if crazy cheap prices are reached after you have invested your 100 core shares, you can use the rest of your account to buy as many crazy cheap price shares that you can afford. When the market recovers later in the day, or definitely on strength in the following premarket, one must liquidate the crazy cheap price shares. If I buy crazy cheap shares and I have not reached my 3 trades in the last five days limit, I try to sell out on the next rally and do a day trade. If I can't get out that day, then I sell out the following morning. Since I am buying at crazy cheap prices, I cannot remember when I ever took a loss on these shares. It has probably been a year or two ago.

If playing DUST with $11,000 or $12,000 making a 600 share limit, I could buy 50 shares three different times if DUST kept falling lower. I could then decide on the close if I wanted to add more shares. About twice a week, I find being "all in" so compelling that I invest up to my limit, which in this case would be 600 shares of DUST.

When Day Trading, Buying In Early Is Preferred, But When Position Trading, Buying In Late Is Preferred

When day trading, most of the trades should be completed by noon. Early trends often reverse late in the day so it is prudent to make your money early and leave the markets alone. But when position trading for the next day, the later one buys is often better. By waiting until later in the day, more information is known, the daily ranges have been established, and it is more likely you will be buying near the day's low. Crazy low prices tend to occur late in the day on weak days and that is when you want to do your buying.

Even Down Trending Markets Tend To Get A Morning Pop

When the thing you are trading is in a bullish trend, it tends to pop up in the morning. But if you look at any chart, you will quickly see that during a down trend when the market drops 4 out of 5 days, or 8 out of 10 days, and the candles are nearly all red, there is a tendency to open up the following day. That is because not even bears like to "sell into a hole" and they put their sell orders above the previous day's closing price. This morning pop that occurs in up trends, and more often in down trends, is where you will make most of your money! You will sell out on morning strength, and then buy back later in the day on weakness, ready to catch the next morning pop. Lets call these over night trades and the traders who are doing them, will be called "Overnighters".


Just because you don't have the funds required to day trade, it does not mean an "Overnighter" cannot make as much money or even more than a Pattern Day Trader. The only reason I day trade, is to readjust my average price lower, that keeps me liquid and allows me to trade on a much large scale. Where I make a majority of my money, and where small trader "Overnighters" will make virtually all of their money, is buying shares in the afternoon or during the aftermarket, that they have determined have an extremely high probability of popping up the following morning. Then it is just a matter of selling out in the premarket the next morning and getting ready to buy back again to set up the next trade. I will start giving in my stock talk comments, buy zone areas for both DUST and NUGT for the "Overnighters".