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How to Beat the Market Makers at Their Own Game: Uncovering the Mysteries of Day Trading by Fausto Pugliese

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CHAPTER 1 The Direct Connection

Before delving into the specifics of locating stocks and placing buy and sell orders, let's take some time to get a clear understanding of how trading works in the stock market. It is possible for you to become one of the very few people who understand just how the market process works. Believe it or not, most people—even traders who have been investing and dabbling in the stock market for years—have no clue how their trades get executed.

To start off, let's consider a typical investor with an online brokerage account. He or she has no idea how his or her trades are executed. And guess what? They don't need to know. All the trader needs to know is how to access the account, place an order, withdraw funds, and so forth. The process of pressing the button to sell a stock and how that translates into cash in the trader's account isn't important at all.

After all, I have no idea how my car works, and I don't need to know how my car works to be able to drive it to the office or the supermarket or even across the country. All I need to know is how to operate the car: how to start it, how to put it in gear, how to use the brake and gas pedals. For my limited purposes, it doesn't matter what is happening under the hood, so long as it happens when I need it to happen.

However, this limited knowledge would never cut it if I wanted to be a professional race car driver. To get the maximum performance out of my car, I would need to know exactly what happens ...

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