I briefly touched on trading as a possible method for making money from home in my previous post.
What do we mean by that? What is Trading?
Trading is Buying and Selling of Financial Assets
Now that I’ve defined it, who can make money from trading? And what types of financial assets can you trade?
Don’t worry, we’ll get into that in a minute. But first, I need to explain something else. You see, there are many different approaches to buying and selling assets. Not all of them would make for a good business, or produce steady income.
To trade as a business, you need the asset to be fairly “liquid”, that is, it needs to be something that moves frequently, and you can buy or sell whenever you want. Buying a house would be less liquid than buying a public stock. You can also invest money into projects where it’s very hard to get your money out, this would not be liquid at all, and thus unsuitable for short-term trading.
Trading as a Business is Riskier than Long-Term Investing
This is because trading for income involves holding assets for only a short time span. The smart investor buys low, and sells high. In trading, you are most likely to make a higher amount of income if the asset is fairly volatile in price. It’s all that movement up and down, you see, that makes for many opportunities to buy or sell at a profit.
On the other hand, in Long-term Investing, you just buy and hold assets that have a tendency to go up in value. You only need the money when you retire, whether that be in 20, 30, or 50 years from now. So you want more stability in what you buy. Your strategies would be very different, and the types of assets you would buy would also differ.
Since it doesn’t pay out in the short-term, I’m not going to discuss investment strategies for retirement on this blog, although I recommend that you have a plan for your retirement.
What is Your Tolerance for Risk?
If you can put up with the higher risk of buying and selling assets over a short time period, then you can make money from trading. Period.
You need to take time to learn how this is done, though. There are a lot of free resources to teach trading skills.
The question to ask yourself is, How would I react if an asset I bought went down in value? The terms for the stock market, when it goes up is a “bull” and when it goes down it’s a “bear.” Once you have studied a while, you will know how to make money in either scenario.
If you panic when everyone else is dumping an asset that is falling in value, and jump into the herd-like mentality, sell when everyone else is selling, then you are not showing a tolerance for risk or doing the individual thought that is needed to make money from trading.
The people who make money are the ones who can wait until the best times to buy or sell. Who have a plan for when to buy or sell and have the mental discipline to stick to their plan. Who can tolerate losing money on a particular trade provided that they have a plan for making more money on good trades than they lose on bad ones. If you’re not interested in making these sorts of decisions, then maybe you don’t want to be a trader.
The people who sell when everyone else is selling don’t realize it’s their reaction that causes them to lose money. In financial jargon, we would say, if a stock you bought goes down in value, you haven’t actually lost any money yet. You still own the stock. You have “paper losses”. You “lock in” the loss if you sell, but if you resist selling and wait for it to go up again, you don’t lose any money (provided that it does go up again, which is fairly certain with big well-established companies like the ones on the major stock exchanges).
There Are Many Assets You Can Trade In
Some examplles are:
- Stocks – part ownership in a publicly-traded company
- Bonds – financial debt instruments
- Options – more complex financial assets connected with stocks and bonds, which I won’t get into in this post
- Forex or Foreign Exchange, where you are trading different national currencies against each other
- And finally, cryptocurrencies such as Bitcoin. There are thousands of these currencies, and they all vary quite a bit in value, not only against the US dollar and other national currencies, but even relative to each other they can be quite volatile.
A Good Program to Learn About Trading
There are many programs, systems, and courses to assist traders and teach you how to do this.
I have one that I recommend, with qualifications. I haven’t made any money from it, but that’s not the only way to measure success. I haven’t done any selling, and only minimal amounts of buying from the information I gained from this source. I have used it enough to know that I WOULD make money with it if I spent a little more time, and did a little more buying.
Over three months ago I started paying for access to a financial charting program that automates a lot of the work of finding things to buy and sell. It’s called TrendSpider and I hope to start making some money from buying and selling stocks and cryptocurrency by using their charts on their website platform. Besides its automated trend line drawing, another reason I chose this service is because it is one of the few to include charts for cryptocurrencies.
Who do I think can benefit from TrendSpider?
I would not recommend trying it unless you can do the following. I think I would need to spend at least 10 hours a week learning about different methods, and using the charting program to figure out what I want to buy and sell. There is a free trial for 7 days, then you have to upgrade to a paid account to continue, but this is an excellent chance to try it out first and see if you like it.
You also want to make sure you can put enough money into the assets to be worthwhile as you are learning. Like any riskier investment, this needs to be money you can afford to lose – not that it wouldn’t hurt to lose it, but you can’t be dependent on the income from your trading account to pay your basic bills or you will be so afraid to suffer a loss that you don’t take any risks.
I can’t quantify how much money it takes to get started for you. I know that stocks generally cost more than cryptocurrencies to buy enough to get started. I have bought some fairly inexpensive stocks, $20 or less per share, and on some platforms you can buy portions of a share to get started, but it would take a long time to build up your account through a rise in price if you only put in that much.
If you can’t afford to put anything in at first, you can do “paper trading” where you just write down the assets and don’t actually buy them, and then track their performance to see how they do. This is a good way to test the TrendSpider system or any other system you use but obviously you won’t make any money doing this.
One other issue you may have if you’re trading stocks is finding a good broker to handle the trades for you. I’ve tried out several and will do some reviews in another article. TrendSpider is not a trading platform, in other words you can’t actually do your buying and selling inside it, although that could change at some point. Some other market chart systems do integrate with brokers, but I haven’t tried any of them.
Learning How to Trade
The last piece needed for trading is knowing what to buy or sell. This trading stuff is not a “get-rich-quick” scheme. Because, like so many other areas of business, it requires quite a bit of time to learn how to do “technical analysis” which is the bread and butter of short-term trading. Let me explain what that is.
There are two types of information you need to know about financial assets such as stocks or crypto-currencies.
Fundamental analysis involves learning about how well-run a company is, what their profit and revenue are, if their product is going to sell, and other factors that determine the long-term success of the company. Any long-term investing you do should be based primarily on fundamental analysis.
With cryptocurrencies you would be looking to see how easy is it for people to start using the coin, how many people are using it, and how long it takes for a transaction to be verified on the blockchain – the decentralized or shared digital ledger where all the transactions are recorded. With most cryptocurrencies transactions can be verified in a few minutes, making it a much faster way to send someone money than the 2 to 3 business days it takes to send someone dollars or other national currencies.
Technical analysis is a more short-term category of information, where you look at the fluctuations in price from day to day, even minute to minute. In the short-term, the market reacts to psychological factors, for example markets have been going down because of “Corona-virus” panic for most of the last couple of weeks. The information about most companies hasn’t changed, but the only ones going up were the ones making cleaning products such as Clorox.
In technical analysis, you look at the chart, and look for trends, look for support (a recent price level below the current value which tends to make it harder for the price to drop below that point) and resistance (a recent higher price level which makes it harder to have the price go higher than the resistance level). You learn about different types of candlesticks – the most popular form of charting the results from a single day or time period. Each candlestick shows 4 prices for the time period being charted – the high price, low, opening price, and closing price. Between the opening and closing price, it’s thick, like a candle.
Here’s a real candlestick.
And here’s the one on a market chart. See the similarity?
The first thing that drew me to TrendSpider is that they automate the finding of trend lines. I had previously read a lot of free information about good trading methods, and it was recommended that you lower your risk by only buying into a trend that is already started. Seems like good advice to me still.
You can set up alerts to email you when a price drops above or below a certain point. There are many training videos, and overall I found it to be an excellent system, but I may need to cancel for financial reasons. I’ve taken on a couple of other monthly payments, but I am due to get a raise at my job very soon. So we’ll see.
Anyway, I definitely recommend doing the 7-day trial if you’re interested in learning to trade stocks or cryptocurrencies. They have an affiliate program, but I haven’t signed up for it yet. If and when I do, I will update my links and let you all know that it is an affiliate link.
Thanks for reading!