WanderingTrader

How Professional Day Traders Make Money In The Stock Market

How professional day traders really make money in the stock market is a question that I get quite frequently.  I even announced a Q&A session recently via the WanderingTrader Facebook page and most questions were actually about day trading rather than travel.

There is an aura around Wall Street and the stock market that involves a lot of money. Most people are vaguely acquainted with the stock market and only understand that there’s a lot of money involved.

Some of us in recent years have even begun to dislike everyone associated with the stock market because they have all the money that we are supposed to have. If you can beat them join them right?

As I continue to get more and more questions about day trading I plan on explaining a bit more on what day trading is and how I make a living doing it.

day trading

What Day Traders Really Do….

Basics of How Professional Day Traders Make Money in the Stock Market

The financial system is significantly more complex than it used to be even 10 or 20 years ago. The basic premise behind why the stock market exists is because companies need money to grow. After a company gets to a certain point they need more money to grow. A private company turns into a public company and that is when a company first appears in the stock market.

The stock market can be compared to eBay. EBay is the 21st century version of a garage sale, we have things we don’t need that still have value and we want money for them.

The stock market is essentially the same thing but with companies that need capital (money) to continue growing. Eventually a company gets so large that they stop lending money from their friends, local banks, and family. They go public to receive a cash infusion they need to keep growing and compete in their industry.  Once a person initially invests in a company via stock market we become part owners of the company.

Stock markets deal in shares of stock. If there are 100 shares of Google and I buy one share I therefore own 1% of Google.

This is relative because there are actually millions of shares of stock for certain companies.

Every company is placed in a group of stocks called stock indexes much like categories on eBay. If we want to purchase a camera or laptop we will look in the electronics section. When one wants to purchase a new bed we look in the furniture section.  Categories on eBay vary a bit to stock indexes but to the untrained eye we can look at it the same way. The NASDAQ composite index for example is mostly known for having technology stocks. The S&P 500 index is an index of the 500 largest public companies in the United States.

So once a company goes from private to public we begin to invest in it. The left over shares have value and the general public decides what that value is based on the stock market. With anything that has value one can determine a future value. This is the reason why the stock market exists and the fundamental way that professional day traders really make money in the stock market.

They buy and sell stocks based on their future value.

day trading charts

What our day trading charts look like

Fundamental vs Technical Analysis

In order to determine the value of a stock or company traders and investors used two typical models, fundamental analysis and technical analysis. It is important to note that these two types of analysis are the main forms of investing/trading in the stock market.

Fundamental analysis involves someone understanding concepts like the health of a company via its competition, revenue and profit, it’s management, and potential for future growth (think Warren Buffet). The concept here is to understand a company is in a good position to grow and increase value.

Once a company increases its value it pleases investors and professional traders.

A trader or investor would have purchased the stock at a lower price and since the company has a higher value (higher priced stock) it makes a person money.

Technical analysis does not include any of the above. Technical analysis strictly involves looking at a chart with a set of indicators and recognizing patterns. One random example would be if a certain company goes up during a certain time of year.

If we assume that Apple will make more sales during the holiday season then we may be able to assume that its stock price will go up during that time of year. A professional trader that is looking at Apple stock might look for patterns in changes in price during a specific date or time of year.

Technical analysis does not involve analyzing the company’s financials or management.  It simply involves looking at a chart and making decisions.

reversal patterns

An example of two reversal patterns which is part of technical analysis

Professional day traders have advantages and disadvantages with both types of analysis but it also depends on what kind of trader a person is.

If one is looking to invest in a company long-term we may look more at fundamental analysis. I prefer strictly a technical analysis approach due to the uncertain economic times we are in.  I simply prefer to not have my money in the markets when something erratic or volatile can happen.

It also takes a lot of work to look at news and connect the dots with all of the different opinions and news sources online. Instead I turn on my computer and begin looking at a chart, do a few minute pre market analysis, and begin trading.

Most people that we call day traders look at the market which strictly technical analysis. They are normally classified into three different types of traders; scalpers, intraday traders, and swing traders.  All three types of professional day traders are looking to do the same thing, make a profit based on a different in value. The only difference between the three is the amount of time they are involved in positions.

Scalper Traders

Professional day traders that make money in the stock market with high frequency and lower profit are called scalpers. The goal is to take advantage of small inconsistencies in the market in addition to quick movements (changes in value in a matter of seconds or minutes).

A scalper may only be in a position for five or 10 seconds or possibly a minute. A scalper also tends to place a higher frequency of trades and as their profit is normally lower per trade.   A higher frequency of positions (entering and exiting trades) is needed in order to make higher profits.

Types of day traders

Types of day traders

Intraday Traders

Professional day traders that make money in the stock market on a daily basis are considered intraday traders. An intraday trader never holds a position overnight hence the term “intra-day”. Intraday traders are typically in positions from within a few minutes to possibly a few hours.  Intraday traders are typically not as high frequency as scalpers but due trade more often than swing traders.

I would consider myself an intraday trader as I normally trade between an hour or two a day with TheDayTradingAcademy.com. Most of our traders make their money within an hour or two a day. Our live classes are normally a few hours as well since the best activity in the markets come within the first few hours.

Swing traders

Professional day traders that make their money swing trading involves a much longer period of time. A swing trader uses fundamental or technical analysis but stays in trades over a few days or even weeks. To compare the differences between a scalper or intraday trader, a swing trader may be in a position for a few days or weeks whereas an intraday trader never holds a position overnight.

This swing trader term infers that someone plays the swings in the stock market rather than the quicker movements.

There are also much longer term day traders called position traders which hold trades for several weeks or even months.  We won’t highlight these kinds of traders on today’s post.

Conclusion

The whole basis of a professional trade day trader making money in the stock market involves accurately gauging the value of a stock.  A stock of a company is in essence the price at which the general public says it’s worth.

Since the financial system has changed it has become more complex and there are more investment vehicles than just stocks to invest in. These can be stocks, futures, options, and even forex (currency fluctuations).  The basic premise of making money in the stock market is simple, gauging the value of something and making a profit when your estimation was correct. (Check out the Day Trading Academy YouTube to see how we actually trade)

One of the most important things to understand is that a day trader can make money when the market goes up or down. If we are estimating the value on something we can also estimate that the value is going down and make a profit on it.

Day traders can actually make more money when the market is going down, when the economy is in a recession, or when there is a crisis. One of the reasons I love to make a living day trading is because we actually make more money and an economic downturn and a crisis than we do when things are going well. I do still hope the best for you!

So there you have it! A bit of novice background of how I make a living day trading & traveling around the world.

80 Comments

  1. Hello Marcello, are you using NinjaTrader for ES trades?
    Have you heard any problems with AMP Global Futures?
    And have you had any issues of Internet dropped and then losing your Stop orders?
    Thanks Marcello! 🙂
    Also will be taking off for RTW Nov 5 from SFO to Penang, Malayasia. (1st Leg)
    -John

  2. I just started trading and started running a blog about my discovery.
    Thanks for sharing the basics here.
    I tweeted this “baby”!

    best

    Akos

    1. Dear Marcello, first of all I want to thank you for sharing your knowledge about trading over here. I want to know as to what interval chart referring will be best for an intraday trader, 1 min, 5 min or 15 min? Which indicator to follow to enter and exit with minimum profit but no loss at all. Only win win trading let the profit be less. Your valuable response will be highly appreciated.

  3. Hi
    I wanna trade, but I have NO money at all (saying the truth, I have now 9€ in my only bank account, and 25€ in my wallet)…
    I want to make a life with my girl, it doesn’t need to be an amazing life… Enough to be happy…

    I really want this, but all the places are asking me for money in first place and I don’t have even half of that money(and if that is true, why can’t we give the money back when we get it?! It is not difficult if true, rigth?…)

    Hi will be waiting for some answer from you

    Thanks

    Luís Ferreira

    1. It really depends on what market you want to start trading in. Sorry to be so vague but it is important to know what market you are trading before answering that question.

  4. This is such bullshit. No one makes money and its a scam. Look into Value Investing and investing of the long term. Day traders make money but over the corse of 5/10/20 years they are usually broke. Invest for the long term and don’t listen to this con artist.

    1. I could easily refer you to more than 5 people (and more) that are now making a living day trading. All through the techniques that I taught them. Just because you can’t do it doesn’t mean that other people can’t

    2. I am yet to see a day trader make a decent money in the market. It is always one step forward then one step backward next day kind life.
      I agree long term fundamental investors make real money in the market. But then it is not sexy right? And you need years of hard work (horror) to make your riches. But that is only way to make reliable and lot of money in the market- Long term, value style, fundamental investing.

  5. Hi Marcello, I think given the proper understanding and right attributes including decisiveness, appetite for risk and confidence, one can be a very successful day trader… but probably not everyone’s cup of tea if it’s too much adrenaline for someone during trading.

      1. How do you use Ninja Trader, is there a tutorial for beginners. I just get a blank program with no data information on it. How do i get market data?

  6. I recently discovered your article in the BBC news. Travelling is my main passion and the reason I have began to research into day trading. I enjoy going to festivals abroad and I have a decent enough job that pays well so I can travel a bit but not for as long as I would like so im always being pulled back. So far im pulled towards the Intraday trading, which websites and programmes do you recommend to do my research in before I start investing money, also on the subject of money I was thinking of starting off with about £2000 capital its all I can spare to lose at the moment if im not very good at trading. Also on your travels have you came across any festivals in South America you would recommend? I plan on going to brazil next year for a festival there and looking for other ones in the neighbouring countries.

    Regards

    Declan

  7. Hey Marcello, great article. Just a quick question. Is the following scenario possible?

    Texas Instruments shares are worth $62.40 at 10AM. I buy $10,000 worth and at midday they cost $62.60. I decide to sell them. I make $12,000 ($2,000 profit).

    Is this what day traders do?

    1. I’m no expert but that math is way off. If the stock is 62.40 then $10k worth is 160.25 shares (round to 160 with a total cost of $9984. 62.60 x 160 = $10,016 for a profit of $32. If there are fees involved I doubt any money would have been made on such a transaction.

  8. I would love to be what i am, all i need is understanding the basic concepts of trading,market approach,what time what trade works.

  9. I want to learn the basic fundamentals of trading I’m looking for someone to show me how it actually works it seems as it can be very frustration at times but over all it seems good

  10. Disgusting! Why would one want to waste their time and talents on this???
    Go and plant a tomatoe plant or work on a scientific project. You know, do something that has something to do with reality.

    1. Well lets see…. with the money I can make from day trading I can fun a scientific project. I can buy a farm and find more efficient ways to grow tomatoes. I can even build free schools around the world. You know, you have no idea what you are talking about.

  11. can you explain how do you “make more money when the market is going down” (giving emphasis on the word more as I believe during recession down swings are more than upswings and their magnitude as well) ?

    1. You can make money when the market goes up or down Ishan. I basically just make a bet that the market will go down that’s pretty much how its done.

  12. will you please tell me more about a deep analysis of the market or a particular company.if its possible then write about some useful links and books

  13. Good day bro, how do trading schools make their revenue, is it being excellent traders or by the fees charged, shouldn’t they be more honest to their clients on how they make their millions, rather than misleading them that they make them via trading??

  14. Hi Marcello. I think I m one of best intraday traders amongst the people I know. Still I can’t make great profit bcoz I have 9 to 6 job so it’s impossible for me to look at scree n all day long. Can you please suggest any alternative??

  15. Want to know more about stock trading and how to make money by trading on stock market. I want to also how quickly can I get on board to start making good money.

  16. To everyone reading this blog, there’s a multitude of problems that Marcello here doesn’t talk about (or maybe he’s just overly optimistic) about day trading. I have many years of experience in financial services experience just as a FYI, so here it goes:
    1) you need to start off with a large chunk of money that you are willing to invest. That means around $10,000 that you are WILLING to just put in the stock market. Keep in mind that you will need at least a few extra thousand in your account just as an emergency, to pay bills, rent, and other personal expenses (in this case traveling too??). So you’ll need at least $20,000 to start off.
    2) Day trading is NOT a sustainable way to make money in the long-term. Yes, you may have a few good days, weeks, or even months, starting off. But you can also be in losses and it’s really easy to go into losses because the amount of Wall Streeter’s you’re competing with is VAST. I’m talking about millions of people.
    3) If you lose money trading, and you are simultaneously spending money on traveling, food, misc., it will be a nasty situation.
    4) one must be experienced to day trade. You cant just learn how to trade with this stupid course above. Years and years of experience are needed.

    1. 1. Incorrect. I have many traders over my last 14 years of experience now that have opened accounts with just the minimum $1,000, $2,000, and even $3,000. The amount that you are stating is for STOCKS. Not a market like futures.
      2. Incorrect again. I have more than a handful of traders that actually day trade for a living. While it isn’t easy and it takes a lot of work. It is possible to make money. If it was easy everyone would do it.
      3. You don’t have to travel in order to day trade.
      4. We have had traders that have gone live in just 3 weeks. While this isn’t the norm learning how to day trade is a process. It is a skill that we have to develop. It doesn’t happen overnight.

      You sound very jaded against the industry I would recommend you do a bit more research before making comments that are incorrect.

      1. Also, suretrader can have you trade intra-day with as little as $500 but the fees are a bit high. Being in thye bahamas lets them get around the $25k rule. (dumbest rule ever if you ask me)

  17. nothing major man

    come think of it, think about ethics and principles. not picking on anyone, but yhere are persons who are in roughe situation i.el due to uncle’s heart surgery, consider those

  18. Hi Marcello, what kinds of people make the best day-traders? For example, are they less risk-averse than the typical person? Or maybe they are more numbers oriented? Thanks!

    1. That is actually a fallacy Terry because I have worked with math oriented people, programmers, and even a legally blind person in the UK, painters, and firemen. It’s not about being adept at doing it like “being a math person” it is more about how serious you take it. Discipline, patience, and perseverance, are some of the most important things when it comes to day trading.

  19. Hey Marcello! How exactly do I get stared on day trading? What special programs do I need to download? And is it wise to trade in Canadian dollars?
    I have read your blog for a year now and I’m really fascinated with your ability to make money and travel. That’s my ultimate dream! Can you please help me get started?
    Thanks!

  20. Which is best day trading or investing.. I am currently a long term Investor, but I notice I leave alot of gains and could possibly add shares to my position if I trade it all the way up but then I’d sacrifice the 100’s of % gains. I know I would have made them.all the way up but I lose the tax benefits too.. ? So what is truly best and fastest way to build wealth?

    1. Day trading is really the fastest way to make gains Shawn. Day trading is short term intra day where you get in and out the same day instead of waiting weeks or months to get out.

  21. Is it possible to start for practice sakes with an amount of 150-500 and generate small daily profits while honing ones skills. My goals are to develope into a day trader using a mix of intra and swing trades. Would like to generate $200 to $300 per day. What do you think would be the best approach. Or is the amount just to small for this goal.

  22. Hi Marcello,

    I’ve recently been managing my 401k and trading it myself. I normally hold onto a stock for hours to days. I try to make 2% off a stock or more and sell. I’ve been doing pretty good.

    However the issue I have is with my 401k…through my employer. It takes 3 to 4 days to get my money back after selling stock. To reinvest. Is it like this everywhere? Or is there other websites where I could buy and sell stocks and turn around and do it all again in same day to maximize profits.

  23. Really very informative. Glad that I landed up here. I always dreamt of life like yours, financial freedom, location freedom and time for everything. How do I take your classroom course. I am not located in your country, by any chance in near future you planning to conduct classroom training in Asia.

  24. I have been trying to day trade for 7 years with no success. But I love it. I want to quit my job someday and travel while day trading for a living. My biggest issue is that I never met any other trader who is successful that is not trying to sell me something. I am sure they are out there, I just never met one. I have been in several trading rooms and I never see a student that is successful, only the instructor. However I am not giving up on my dream. Thanks for your time

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