"really learned about the stock market," she says. The brokerage firm also reinforced concepts Jones had already been exposed to when she earned an M.B.A. in finance and entrepreneurial studies at the University of Southern California’s Marshall School of Business.
Armed with this background and experience, Jones was confident she would be successful at day trading. To boost her knowledge, she spent $2,000 on a seven-day class designed to teach her as much as possible about trading-everything from investment psychology to the technical strategies used by securities pros.
When she plunged into day trading last summer, Jones was fortunate enough to have $50,000 in cash at her disposal. Most day traders need $20,000 to $25,000 in start-up capital, but some get going with just $10,000 or so.
"GAP AND CRAP"
Jones began trading out of the offices of the online brokerage firm Westwood Trading (later acquired by Cornerstone), and she remembers her early days vividly. "I would do just two or three trades a day and then go home," Jones recalls.
By using a strategy known as "gap and crap," she could easily pocket $500 or more in an hour or so. And by bailing out while the going was good, Jones was observing a cardinal rule among day traders: "You can’t get greedy. You have to take your profits and get out of there."
Needless to say, it was a rush to earn so much money so quickly. And such a work schedule represented a far cry from her 14-hour days at Prudential.
In fact, one of the reasons she left Prudential was to spend more time with her son, who is now three years old. So, as a day trader, Jones initially found the best of both worlds: a new sense of freedom as well as fast money. "It was exciting. I woke up every morning looking forward to trading," she says. "And I used to make a lot of money, when I first started, just playing gap and crap."
A gap occurs in the market because there is trading that takes place overnight. In many cases, individual investors come home from work and place
buy or sell orders through Charles Schwab & Co. or some other online broker. These electronic orders, however, don’t get executed until the following business day. The result is that various stocks "gap" up or down in overnight trading, depending on investor demand.
Whether or not these stocks will close their gaps and return to the previous day’s levels is anybody’s guess-a crapshoot, you might say. As such, these openings present narrow windows of opportunity. To determine how she should play gaps, Jones would look at the S&P futures to gauge how the overall stock market would open.
If the S&P futures index pointed to a lower start, Jones would try to find individual stocks that had also gapped down. Then she’d watch her ticker screen, which showed her the size