Re: [CANSLIM] Deduction Subject to 2% Limit

From: "Robert Gammon" <rgammon51@yahoo.com>
Subject: Re: [CANSLIM] Deduction Subject to 2% Limit
Date: Wed, 23 Jul 2003 13:29:55 -0500 (CDT)

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Daily market movements == Day Trading, ultra short term trend 
following trades.  We all look at charts, these charts need to 
cover periods of a week or less.  We seek to capture profits from 
the relatively small spikes (up and down) that almost any stock 
experiences every week

Capital Appreciation == a pattern of generally winning trades.

To certify as a trader, you need to make contact with someone at 
the IRS that is familiar with the qualifications.  That may 
require some diligence to locate such a person.  They will want 
to see your trading records.  brokerage statements, spreadsheets 
on your computer, etc.  

From your trading records and your latest tax return 
  1. It needs to be clear to the agent that you are supporting 
yourself with this trading activity.  That is, the trading 
profits are the majority of your income.
  2. Your holding periods need to be measured in days or hours 
not weeks or months.
  3. There can be no detectable Dividend Capture activity (our 
parents, if sufficiently savy, were fond of this).  There are 
several other short term trading strategies that are potential 
gotchas here.

The 'good' thing is that Wash Sale Rules do not apply.  The bad 
thing is that we must Mark to Market like futures/commodity 
traders do at the end of the year.

In other words, the stuff that the Day Traders did, if they were 
following the rules, meets this criteria.  
1.  They had to be successsful - very very few were/are
2.  They had to follow the rules - NO overnight holdings other 
than cash.
3.  They were at the terminal every market day, except for brief 
vacations.

I have seen several Day Traders who had the round trip profit 
taped to the top of their screen.  These were usually expressed 
as profit on 1,000 share trades.  They were looking to capture 
movements of 25cents or less.  Meter drop was IMPORTANT, the 
length of the ride was uninteresting (cabbies have the same 
attitude, they want LOTS of short fares not two or three LONG 
trips across town).

Robert Gammon
Houston, TX

On Wed, 23 Jul 2003 13:41:24 -0400, Hong Hsu wrote:

> >An average holding period of 12 days is LIKELY to disqualify 
you as a 
>trader. >Traders hold very few positions overnight.
>
>
>Rob,
>
>    Thanks for your info.  But my questions remain unanswered. 
that is, 
>"What is daily market movements in the prices of securities and 
what is 
>capital appreciation from that price".  Can you give precise 
answer to 
>that from your professional experiences?  
> 
>
>>The use of Schedule C for trading without a letter from >the 
IRS certifying you as a trader incurs a high risk of >an audit 
where all expenses allowable will be moved to >Sch A.
>
>That is interesting info.   What is the procedure that the IRS 
use to 
>certify someone as trader?  I will appreciate if you could share 
that 
>information with us.
>-Hong
>
> 
>
>Robert Gammon wrote:
>
>>The use of Schedule C for trading without a letter from the IRS 
>>certifying you as a trader incurs a high risk of an audit where 
>>all expenses allowable will be moved to Sch A.  The rules for 
>>being a trader essentially say a consistent pattern of trading 
>>and trading for short term gains.  Stock that are held for as 
>>long as a month will disqualify as a trader.  Traders MUST have 
>>substantially all of theire income from trading.
>>  
>>
>
>
>
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Robert Gammon
Houston, TX

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