How to Day Trade for a Living

How to Day Trade for a Living Plot Summary

Introduction

Day trading is often misunderstood as a path to quick riches, but the reality is quite different. The market is a battlefield where only the disciplined, educated, and patient traders survive. While many are attracted to the freedom and potential profits of day trading, few recognize the dedication and skill required to succeed in this challenging arena. In the pages that follow, you'll discover proven strategies that can transform your approach to the markets. You'll learn how risk management forms the foundation of trading success, how to identify the most profitable trading opportunities, and how to develop the psychological resilience needed for consistent performance. Whether you're just starting your trading journey or looking to refine your existing skills, the practical wisdom in these chapters will guide you toward becoming the trader you aspire to be.

Chapter 1: Understanding the Battlefield of Day Trading

Day trading is not a gambling activity or a quick path to wealth—it's a serious business that requires education, practice, and proper tools. Unlike long-term investors who hold positions for months or years, day traders enter and exit positions within the same trading day, capitalizing on small price movements in highly liquid stocks. The appeal lies in the lifestyle it offers: working from home, setting your own hours, and potentially earning substantial daily profits. Andrew, an experienced trader, shares a cautionary tale from his early days. When Aquinox Pharmaceuticals Inc. (AQXP) announced positive results for one of its drugs, its stock jumped from $1 to over $55 in just two days. As a beginner, Andrew purchased 1,000 shares at $4 and sold them at over $10, making $6,000 in minutes. This early success created a dangerous misconception—that making money in the market was easy. Within weeks, he lost the entire $6,000 through mistakes in other trades. His first experience was pure luck, not skill. This story illustrates a critical truth: day trading success doesn't come from random lucky trades but from developing a systematic approach. Many novice traders experience initial success through chance, creating false confidence that ultimately leads to significant losses. The market's complexity demands respect and preparation, not impulsive action. To succeed in day trading, you need several essential elements: sufficient capital (at least $5,000 outside the US, $25,000 for US residents), high-speed internet, a reliable broker, a fast execution platform with hotkey capabilities, scanning tools to identify opportunities, and ideally, a community of fellow traders. These tools represent the basic infrastructure of your trading business. Day traders must approach the market with a guerrilla warfare mindset. Unlike institutional traders who must remain active in the market, individual traders have the freedom to wait for the perfect opportunity. This flexibility is your greatest advantage—but only if you maintain the discipline to wait patiently rather than overtrading. The ultimate goal is to find stocks with high relative volume and clear catalysts that move independently of the broader market, what Andrew calls "Alpha Predators." The battlefield of day trading isn't won through aggression or force but through preparation, precision, and patience. By understanding the true nature of the market and approaching it with appropriate respect, you position yourself to develop the skills needed for sustainable success.

Chapter 2: Building Your Risk Management Arsenal

Risk management is the cornerstone of successful day trading, yet it's often overlooked by beginners who focus exclusively on entry points and indicators. Think of trading as a three-legged stool supported by psychology, strategy, and risk management—remove any leg, and the stool collapses. Even the most carefully executed strategy cannot guarantee success in every trade, which is why controlling risk must be integrated into every aspect of your trading plan. Andrew emphasizes that the inability to manage losses is the primary reason new traders fail. He shares from experience that becoming a successful trader requires becoming "a really good loser." This means accepting small losses gracefully and walking away when a trade isn't working, rather than holding losing positions in the hope they'll recover. This psychological discipline separates professionals from amateurs in the trading world. The approach to risk management can be broken down into three essential steps. First, determine your maximum dollar risk for any planned trade—never more than 2% of your account equity. For a $40,000 account, this would mean risking no more than $800 per trade. Second, calculate your maximum risk per share based on your chosen strategy and where your stop loss would be placed. Third, divide your maximum dollar risk by your per-share risk to determine the appropriate position size. Consider a trader with a $40,000 account who decides to risk 1% ($400) on a trade. They're looking at BlackBerry (BBRY) with a plan to buy at $16, targeting $19, with a stop loss at $14.50. This creates a risk of $1.50 per share. Dividing the $400 maximum risk by $1.50 gives a maximum position size of 266 shares (rounded to 250). This systematic approach ensures that no single trade can significantly damage your account. The true power of proper risk management becomes apparent when you consider the psychological aspects of trading. Under the stress of active trades, many traders find it difficult to think clearly or execute their plans. Andrew recounts moments when he had $15,000 in shares and needed to sell, but momentarily couldn't even figure out which keys to press—a form of paralysis that occurs when traders push beyond their comfort zones. Developing self-awareness is crucial for managing these moments of pressure. Ask yourself: Are you focused? Are you calm? Are you making good decisions? Consider these skills as trading muscles that require regular exercise to develop and maintain. While chart reading skills might become second nature, like riding a bicycle, the discipline required for consistent risk management needs continuous reinforcement and practice.

Chapter 3: Finding Alpha Predators in the Market

Alpha Predators are the elite hunting ground for day traders—stocks with high relative volume that move independently of both their sector and the broader market. These stocks behave differently because they have fundamental catalysts driving their price action, such as earnings announcements, FDA approvals, mergers, or major contract wins. Identifying these opportunities is the crucial first step in the day trading process. One memorable example occurred when Cesca Therapeutics Inc. (ticker: KOOL), a low-float stock with only 1.2 million shares available for trading, reacted dramatically to positive news. With such limited supply, increased demand rapidly drove the price higher, creating the volatility day traders seek. Unlike mega-cap stocks like Apple that might move only a dollar or two daily, these smaller companies can experience price swings of 10%, 20%, or even more within hours, creating ideal trading opportunities. Andrew categorizes trading stocks into three classes based on their characteristics. Low float stocks under $10 are extremely volatile but highly manipulated, suitable only for experienced traders using momentum strategies. Medium float stocks ($10-$100) work well with most strategies, particularly VWAP and Support/Resistance approaches. Mega cap stocks like Apple and Microsoft move significantly only when institutional players are involved and are generally suitable for retail traders only when they have specific catalysts. To identify these opportunities each morning, Andrew uses scanners programmed with specific criteria: stocks that gapped up or down at least $1 in pre-market, traded at least 50,000 shares pre-market, have an average daily volume over 1 million shares, and show an Average True Range (ATR) over 50 cents. These parameters help identify stocks with sufficient volatility and liquidity to make worthwhile trades. On August 19, 2016, this scanning process identified nine potential candidates. Andrew then investigated each stock to determine why it was gapping up or down, looking for legitimate fundamental catalysts rather than random noise. From these nine, he selected three or four to watch closely, developing specific trading plans for each before the market opened. Beyond the pre-market scan, intraday scanners help identify opportunities that develop during trading hours. For momentum strategies or reversal setups that can't be anticipated before the market opens, real-time scanning tools become essential for spotting stocks as they begin to move. This systematic approach to finding opportunities ensures that traders focus their attention on the most promising situations rather than being distracted by the thousands of stocks that move each day.

Chapter 4: Mastering Essential Trading Strategies

Successful day trading requires mastering a handful of reliable strategies rather than constantly jumping between dozens of approaches. By focusing on a few proven setups, traders can reduce confusion and stress while developing the confidence that comes from repeated execution. Each strategy provides a framework for identifying opportunities, managing risk, and taking profits in a systematic way. The ABCD Pattern represents one of the most fundamental and accessible strategies for newer traders. Andrew demonstrates this with Ocean Power Technologies Inc. (OPTT), which announced a new $50 million contract on July 22, 2016. The stock surged from $7.70 (point A) to $9.40 (point B) early in the session. Rather than chasing this initial move, Andrew waited for the pullback to establish support at $8.10 (point C). Recognizing that buyers weren't letting the price drop below this level, he purchased 1,000 shares near point C with a stop below this support level. The stock subsequently rallied to around $12, creating a substantial profit opportunity. The Bull Flag Momentum strategy works particularly well on low float stocks that move rapidly. When Rigel Pharmaceuticals (RIGL) appeared on Andrew's scanner on August 30, 2016, it showed the classic pattern—several large candles moving upward (forming a "pole") followed by a series of smaller candles moving sideways (forming a "flag"). Instead of chasing the initial move, Andrew waited for the consolidation period to complete. When the stock began breaking toward new highs, he entered the trade with a stop below the consolidation zone, managing risk while positioning for the continuation move. Reversal strategies capitalize on extreme price movements that eventually correct. When Emergent BioSolutions (EBS) showed seven consecutive downward candles followed by an indecision candlestick (a Doji), Andrew recognized the potential for a bottom reversal. These setups work because stocks that become extremely oversold or overbought typically experience a counter-reaction—like a rubber band stretched to its limit. By waiting for confirmation of the reversal through an indecision candle and the first new high, traders can enter with a well-defined stop at the recent extreme. Each strategy requires adapting to different market conditions and stock characteristics. VWAP (Volume Weighted Average Price) trading works in stocks showing respect for this key indicator, while Support/Resistance trading focuses on historical price levels where buyers or sellers have previously shown interest. Moving Average strategies identify stocks respecting these technical indicators as they trend. The key insight isn't which strategy is "best" but rather which combination of approaches best fits your personality, account size, and risk tolerance. Andrew emphasizes that strategy development is personal—what works for one trader may not work for another. The critical factor is having clear rules for entry, exit, and stop placement that you can execute consistently without emotional interference.

Chapter 5: Executing Your Plan with Discipline

Execution separates profitable traders from those who merely understand trading concepts. Even the most sophisticated strategy is worthless without the discipline to implement it correctly. This becomes evident when watching experienced traders in action—they follow a structured process that minimizes emotional decision-making and maximizes consistency. On June 2, 2016, Andrew spotted Sarepta Therapeutics (SRPT) gapping down 14.5% with a relatively low float and high Average True Range of $1.86—characteristics suggesting significant intraday movement potential. Rather than immediately trading at the market open, he patiently observed price action for the first ten minutes, noticing that buyers couldn't push the price higher than the Volume Weighted Average Price (VWAP). This indicated sellers were in control. After confirming this pattern through two 5-minute candlesticks, Andrew shorted the stock around $18.20 with a stop loss just above VWAP. The trade worked exactly as anticipated—sellers took control and pushed the price down to $17. When a new 5-minute candlestick made a higher high, suggesting buyers were regaining control, he covered his position at $17.40, securing a $650 profit in just 12 minutes. This successful trade didn't happen by chance but resulted from a structured process: building a watch list before market open, organizing a trade plan with specific entry and exit points, initiating the trade according to plan, and executing it with discipline. Andrew compares this to other significant processes in life—when you break down the components and focus on executing each step correctly, the results improve dramatically. The trading day begins with physical preparation—Andrew wakes at 5 AM for a morning run, followed by a shower and breakfast, arriving at his trading station by 6 AM alert and motivated. By 6:15 AM, he's completed his watch list and begins planning specific trades for each potential setup, writing these plans on note cards for quick reference when the market opens. This preparation eliminates the anxiety many traders feel at the opening bell—instead of making reactive decisions, he simply looks for his predetermined signals to enter trades. After each trading session, reflection becomes crucial. Andrew reviews what worked, what didn't, and how well he adhered to his plan. This process of continuous improvement, documenting lessons and refining approaches, accelerates development far more effectively than simply moving from trade to trade without analysis. Even profitable trades deserve scrutiny—did you maximize the opportunity, or could you have managed it better? The discipline extends beyond individual trades to lifestyle choices that support trading performance. Andrew found that regular exercise, avoiding caffeine and alcohol, and maintaining proper nutrition significantly improved his decision-making abilities. Scientific research confirms that aerobic exercise enhances cognitive functions critical for trading success, including attentional control, inhibitory control, and information processing speed.

Chapter 6: Developing a Winning Trading Psychology

Trading psychology ultimately determines your success or failure in the markets. Technical analysis, charting patterns, and entry strategies are relatively straightforward to learn, but developing the mental discipline to implement them consistently under pressure separates profitable traders from the majority who lose money. This psychological dimension requires as much attention as any technical aspect of trading. Many traders begin their journey with unrealistic expectations, viewing the market as a path to quick wealth rather than a profession requiring discipline and skill. Andrew shares that this mindset shift was his own breakthrough moment: "My trading strategies slowly improved with time, but the breakthrough came when I realized that the key to winning was controlling myself and practicing self-discipline. It is hard enough to know what the market will do, but if you don't know what you will do, the game is lost." A powerful illustration of this principle appeared when Andrew observed two elite traders in his chatroom selecting the same stock—one going long and the other short. Remarkably, by day's end, both had produced profits. This demonstrated that experience and trade management often matter more than the specific stock or direction chosen. These skilled traders weren't predicting market direction with perfect accuracy but were executing their plans flawlessly regardless of what happened. The emotional challenges of trading manifest in predictable patterns. New traders typically accept profits quickly while holding losing trades in hope of recovery. This natural tendency—to seek the emotional relief of exiting winning positions while avoiding the pain of realizing losses—works directly against trading success. Professional traders reverse this pattern, cutting losses quickly while giving winners room to develop. Maintaining emotional equilibrium becomes especially difficult during losing streaks. Andrew emphasizes self-awareness as critical during these periods: "Be in touch with the results of your decisions and constantly be reviewing your performance. Are you trading profitably? Have you had five winners in a row or have you had five losses in a row? If you are on a losing streak, will you be in touch with your own emotions and maintain your composure, or will you let your judgment lapse?" Practical approaches to building psychological resilience include trading with appropriate position sizes that don't trigger overwhelming emotions. If you find yourself paralyzed or unable to execute your plan with a certain position size, it's a clear signal you're outside your psychological comfort zone. Begin with smaller positions and gradually increase as your comfort expands. Another effective technique is maintaining a trading journal that documents not just what you traded but your emotional state before, during, and after each trade. Patterns often emerge revealing specific triggers for impulsive decisions or hesitation. This self-knowledge becomes the foundation for developing personalized solutions to psychological challenges. The journey toward psychological mastery is ongoing, even for veteran traders. Andrew notes: "Consider skill and discipline to be your trading muscles. Muscles require exercise to grow and, once you've grown them, they need to be exercised or you will lose them." By approaching trading psychology as a skill to be developed rather than an inherent personality trait, traders can continuously improve their mental performance and trading results.

Summary

The path to day trading success requires mastering three interconnected elements: analyzing market psychology to identify opportunities, implementing rigorous risk management to protect capital, and developing the self-discipline to follow your trading plan regardless of emotional impulses. As Andrew emphasizes, "Being able to make quick decisions and being able to make and then follow your trading rules are critical for success in the market." Your journey begins not with placing trades but with honest self-assessment and preparation. Start in a simulated environment to develop your skills without financial risk. Master one or two simple strategies rather than jumping between dozens of approaches. Join a community of traders while maintaining your independence as a thinker. And perhaps most importantly, remember that success comes not from predicting the market perfectly but from managing yourself perfectly within it. Take your first step today by selecting just one strategy from this book and committing to practice it consistently until it becomes second nature.

About Author

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Andrew Aziz

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