By GASTON F. CERON
DOW JONES NEWSWIRES

NEW YORK -- When Michael Lombardo missed out on the Wall Street position he had sought, he settled for a job at a human-resources consulting firm.

But he soon realized he was in the wrong field. To Lombardo, a 1996 graduate of Hofstra University and an international-business major, the only interesting part of the job was calculating the value of stock-option awards. "I hated it," he said.

Nine months later, Lombardo left to pursue a career in stock trading at Broadway Trading. The company catered to "day traders," the individuals who move in and out of stock positions throughout the day. "In March of '98, I became profitable," said Lombardo, now 29. "I've never looked back."

Lombardo is still trading, although since last year he has been doing so at a trading shop run in New York by E*Trade Group Inc. (ET). In an industry battered by the rough market waters of the last three years, Lombardo is a survivor. Indeed, the ranks of "semi-professional traders" - those who trade at least 25 times a day - are estimated to have fallen to about 30,000 accounts in 2002 from about 50,000 at the end of 1999, according to Bear Stearns analyst Daniel Goldberg.

But although their numbers have thinned, there are many day traders who are still standing. In part, their success is owed to their ability to fine-tune their strategies to fit the changes in the market.

"Adaptability is the most important part of this job," said Evan Goldfine, who trades at E*Trade and also works for the Menlo Park, Calif., financial-services company by helping to lead other traders. "The people who are left are really good."

Despite the ups and downs of their industry, day-trading survivors such as Lombardo said they still love trading. The hours are good - the market day runs from 9:30 a.m. to 4 p.m. EDT, although many traders come in a little earlier and stay later to take part in pre-opening and post-market sessions. And, to those who are successful, trading affords them more independence than they would have had they pursued more conventional careers.

"Trading is the hardest thing I've ever done. It's physically draining after a big day. Sometimes you work really hard, and you've lost $1000 at the end of the day," said Goldfine. But he gets a rush from the excitement of trading. "I'm pretty much the only person who loves their first job who I know," said Goldfine, a 2000 graduate of Rutgers College.

Day traders eschew the buy-and-hold method practiced by most small investors. Instead, day traders typically seek to profit from small, intraday movements in stock prices, by, for example, buying 1,000 shares of a rising stock at $10.20 and selling it at $10.50 minutes or even seconds later. That's why day traders prefer a volatile market, in which stocks are moving swiftly, to one where prices remain more constant.

Traders may also seek to take advantage of a declining market by selling stock "short." Short sellers typically borrow stock and sell it in hopes that it will fall. Then they buy back the shares at a cheaper price, return them to the lender and pocket the gains.

David Nassar, who runs MarketWise Trading School in Broomfield, Colo., did just that in a recent trade. When the stock market opened that day, Nassar was monitoring shares of online auctioneer eBay Inc. (EBAY). "I trade eBay a lot because it's got good volume," Nassar said.

The stock opened at $110.05 on the Nasdaq Stock Market, down 25 cents from its previous close. But it was up 62% since the end of 2002. "It's been wicked strong," Nassar said.

But Nassar had been charting eBay's progress and had noticed that the stock had recently broken through a key technical level. "It started to show a trend reversal. It's getting tired," he said. "This is the signal to get short."

Barely minutes after trading began, Nassar executed two short trades on eBay, borrowing stock at an average price of $109.85. A minute later, Nassar covered his short position by buying 2,000 shares at $109.3346 (some trading systems allow stocks to trade beyond two decimal places), for a profit of $1,030.80.

Although eBay stock would end the day with a 0.7% gain, the short trades placed by Nassar showed how savvy day traders can take advantage of relatively small changes in stock prices. "A good trader cam make money in all market conditions," Nassar said. "As you can see, I'm making my money today on the downside of the market."

But not all traders can adapt to a changing market. In the late 1990s, the economy was strong, stock-market indexes were on the rise thanks to the technology-stock bubble, and interest in trading was soaring. Many amateur investors were fooled into thinking that they could make a living trading full time.

It was a good time for experienced day traders. "I would come in and I'd know I'd probably make $10,000 to $20,000 a day," Lombardo said.

But the ride ended. Stock prices peaked in March of 2000. That year, the once-hot Nasdaq Composite Index plunged 39%. It would fall again in 2001 and 2002, before staging a partial recovery this year. Many inexperienced traders were wiped out. "It was definitely a tough time," Lombardo said.

Trading profits fell. "I saw a lot of guys around me who made a great deal of money during the boom," Lombardo said. "They thought that they were bigger and better than what they really were and they ended up losing everything they made."

The regulatory environment changed as well. In 2000 and 2001, the New York Stock Exchange and Nasdaq moved to "decimalize" trading by displaying stock prices in dollars and cents instead of fractions. The minimum increment in which stock prices could move was also narrowed to as little as a cent, a change that was billed as a boon to small investors but that is said to have made trading more difficult.

Also beginning in 2001, day traders, who often buy stock with borrowed funds or "on margin," were required by the National Association of Securities Dealers to keep at least $25,000 of equity in their accounts. Although the rule was meant to bring some stability to the trading world and reduce risks, Goldberg said that the new requirement helped purge the industry "as traders were unable to maintain minimum equity balances amid plunging markets."

More recently, the market has improved. The Nasdaq Composite is nowhere near its peak, but it has perked up, rising nearly 30% so far this year. Before market conditions improved, "I was content making $1,000 a day," Lombardo said, but now "my goal is to make at least $3,000 to $5,000 a day."

Lombardo said he has made out better than the many day traders who were washed out. He used part of his profits to buy a house in Queens for his parents, who helped support him when he was getting started in day trading.

After six years in the business, Lombardo said he is far from burnt out. He said he views trading as his long-term career. "I love trading," he said. "I don't want to miss a day."

-By Gaston F. Ceron, Dow Jones Newswires; 201-938-5234;

gaston.ceron@dowjones.com
Updated August 1, 2003 3:07 p.m.