Three Keys for Trading Income From Today’s Market
Last week, we talked about my three pillars for successful income investing. And over the last few days, I’ve also highlighted some of my favorite dividend stocks that can generate income in your account.
Today, I wanted to talk about a different way to generate income from markets.
Short-term trading can also be a great way to pull extra profits from the movement of individual stocks or entire markets.
Many people love the idea of active trading, because it lets you take advantage of swings in stock prices. And in today’s more active markets, there are a lot of great opportunities for profits!
Today, I wanted to share three principles that will go far in helping you successfully pull income from the market through active trading.
And later this week, I’ve convinced our Head of Research Jonathan Rodriguez to let us in on one of his favorite trading ideas for right now!
Let’s jump in…
The Many Types of Short-Term Trading
When it comes to short-term trading, there are many different styles and approaches that can work very well.
No single trading strategy is “right” or “wrong” — it’s more a matter of what works best for a given stock or market, in a given time period, for a given trader.
So as you learn more about short-term trading, you’ll soon realize that many successful traders take lots of different approaches. And you’ll want to pick out one or two strategies that work best for you!
Here are just a few primary trading strategies that you should be familiar with.
Buying the Dip — You might have a list of stocks that you want to buy any time they’re on sale. When these stocks fluctuate lower, you can buy them cheap. Then when they move back higher you can sell for profit.
Breakouts or Breakdowns — Many traders look for stocks that break above key resistance points, or stocks that break down below key support points. The idea here is to enter a position when momentum pushes a stock past a key point.
Range Trading — Some stocks or markets tend to stay in a predictable range. In situations like this, it can be very profitable to buy at the low end of the range, sell at the high end of the range, and repeat for as long as the stock stays in that general area.
Special Situations — There are other more nuanced strategies such as trading around buyout opportunities, spread trading (playing the price difference between two different securities), or special option strategies.
These are just a few of the main ways that you can generate reliable income from trading opportunities.
Of course, short-term trading isn’t for everyone.
Making profits from day-to-day swings in the markets requires a lot of extra research, close attention to the market’s swings, and practice.
But there are some great resources (including some trading services from our own Alan Knuckman) that can go far in helping you succeed.
As you start accumulating profits from these short-term trading opportunities, here are some key principles that will keep you on the right track.
Plan Your Trade and Trade Your Plan
The most successful traders in the world have a plan for exactly how they will manage the trade.
So when a position moves in their favor and they start making money, successful traders have a plan for how to sell and when to take those profits off the table.
It may be as simple as placing a limit sell order at a specific target price.
Or it may be a more complicated strategy. The trader might add to a position as it moves in his favor, and then slowly take profits farther along in the trade.
The key is having a plan to make sure you know how you will sell when the time is right.
Same thing for trades that don’t work out the way you planned. (And let’s face it. Not every trade will turn out perfectly.)
When trading, it’s important to have a plan for how to get out of positions that trade lower.
Maybe you set a “stop point” where you’ll close the trade at a certain low price. Or some traders use time as a gauge, closing out a position if it doesn’t pay off in a certain number of hours or days.
Regardless of what strategy you use, you’ll be a lot more successful if you set up a plan first before you enter a trade. And then of course you must have the discipline to stick with that plan and not change your mind once your trade is live.
Protecting Your Capital Is Priority #1
When I started trading for the hedge fund I worked for, my boss and mentor took me to lunch. He wanted to make sure I understood this important principle of trading.
“Zach, our clients already worked hard to save up for their retirement. It’s our job to grow their wealth, but our first priority is to protect their wealth.”
That principle is just as important for the money you’ve set aside for trading.
Because if you lose the savings you’re using to trade with, you’ll no longer have the ability to make income from these trades!
One of the best ways to protect your trading capital is by carefully considering how much money you will use for each opportunity.
If you only invest 10% (or even 5%) into each opportunity, you can survive and continue to trade even if you get unlucky and take a few losses in a row.
Some traders really like using option contracts like calls and puts for short-term trades.
By using these securities, you can often lock in bigger percentage gains for each opportunity. And thanks to those bigger percentage gains, you can pull bigger profits from the market with less invested. That means less of your capital is at risk for any one trading play.
Whatever strategy you use, make sure you’re managing your cash wisely so no one or two bad trades can take you out of the game.
Bulls Make Money, Bears Make Money, Pigs Get Slaughtered
There’s an old Wall Street proverb that I like:
Bulls make money… Bears make money… but pigs get slaughtered.
The truth is, there are many ways to use short-term trading strategies to pull income from markets. But if you’re going to be successful in the long run, you need to be disciplined.
If you get impatient and use too much of your capital on each trade, one day a loss will likely take too much of your capital away.
If you don’t “trade your plan” and you stick with a position that isn’t working, you could lose more than you expected.
But traders who take advantage of clear opportunities that fit with their research… traders who use their capital wisely… traders who don’t give in to the fear and greed cycles of the economy…
Those are the traders who can consistently pull income from the market.
And that income can be very rewarding! Imagine how much better your retirement could be with a few thousand in extra cash each month!
Here at The Daily Edge, we’ll continue to help you uncover the best trading and investing opportunities the market has to offer.
And speaking of opportunities, make sure you tune in tomorrow when our Head of Research Jonathan Rodriguez will let you in on a new trading opportunity he’s been researching!
Here’s to growing and protecting your wealth!