In trading there are times when everything seems easy. Most of our trades are winners, our morale is up, our bank balance is overflowing and life is good! Then, there are times when the volume drops out of the market, trends aren’t as long or strong and money is harder to make. Sometimes we need to sit out of the market altogether if it is too volatile, or not volatile enough.
These are times we all must face as traders, when our particular strategy or style of trading is not bringing in the money it normally would.
One way of dealing with this scenario is to put aside cash reserves from the good times, to help see you through the harder times. Another way is to keep a job, so that you will always have “some income” coming in.
Personally I prefer to have more than one income stream coming in every month, rather than relying on just one source, no matter how good or reliable that source may seem.
In several of his books on wealth creation, Robert Allen writes about the need to have Multiple Streams of Income. The idea behind this is that if one of your income streams runs dry for a week or a month or a quarter, or even a year, there are several other streams flowing into your bank account to compensate, giving you time to adjust.
I trade Foreign Exchange (FX) using David Bowden’s techniques from Safety in the Market. However, as I show my students in Active Trader Coaching, my FX trading routine only takes around 5 minutes per day, from start to finish – often less if there are no trades or adjustments I need to make.
Obviously I didn’t start out this way, I had to spend many hours of study time to get to this level. I had to learn my craft, setup my charts, prepare my business plans and gain experience in the markets. I’m certainly not saying it was easy to begin with!
This particular stream of income takes me around 5 minutes a day to manage – not bad when you consider many people work 40+ hours per week (until they are 67, thank you Mr Rudd) for less money than this.
This frees up time to spend generating additional sources of income. So what are some of the options out there?
There are subscription newsletters like Sharesbulletin, which has consistently outperformed the Australian All Ordinaries Index. Newsletters with a proven record can take a lot of the work out of a strategy for you, allowing you to leverage off someone else’s experience and expertise.
By applying a different strategy to a different market, you can lessen your dependence on a single trading strategy and at the same time produce a handy additional stream of income.
I always encourage students to educate themselves and I certainly wouldn’t recommend putting all your eggs in someone else’s basket, so to speak. However, a quality newsletter is a great way to work towards an additional income stream, especially if you have very little spare time.
Other traders apply simple options strategies like credit spreads to generate monthly cash flow from options trading. Once this technique is mastered, you can place and manage your options trades in as little as one hour per month.
There are other ways to produce income that don’t involve short term trading. You could use a program like the Dividend Key to invest in a portfolio of stocks for the long term. The right stocks can produce nice, consistent dividend cheques for you twice a year. Once you have chosen the right stocks, they often require very little maintenance.
You could even create different strategies within an income stream. For example, I have short term FX trading strategies, medium term strategies, and even long term “buy and hold” strategies if I think a currency is going to make a sustained move.
Some people do all of the above strategies and more!
Each of these strategies is a valid way of creating additional income streams in your life. Even though any one of these strategies can produce more income than you need in a year, the goal here is to make sure you are not relying on just one source of income. If you are depending on one strategy to produce all of your income, the pressure can build up quickly if circumstances change and the money stops coming in.
When the income dries up and the pressure builds, you are more likely to overtrade, or take trades you shouldn’t take, or take unnecessary risks. This is not a good way to run a business.
Over time, you can find that if there are few setups on your FX trading systems, your options strategies or dividend cheques can compensate for this.
Unfortunately, it’s not just a matter of turning these income streams on and off like a tap, or everyone would be doing it!
Each stream needs to be studied, learned and applied, one at a time. Each stream needs to have its own plan, which should fit in with your overall trading business plan and eventually become part of your routine.
I’d encourage you to set yourself the goal of introducing a new stream of income into your life every 6 to 12 months. This gives you time to educate yourself, set yourself up for success and begin putting your new found knowledge into action.
Be Prepared!
Mathew Barnes