I have traded stocks as a side hustle for a few years now. We even paid off some of our student loans with the profits that we made from trading stocks. We trade part-time and since we work from home, we can always be monitoring our stocks throughout the day.
Here are some of the main reasons that you should consider learning to trade stocks:
- The income potential is HUGE. Many traders earn millions of dollars per year.
- Easy to start. You just need a computer and an internet connection.
- Low-cost. You can start with $100.
- Low-time commitment. Trade as often as you like!
- It is fun!
For anyone working at home, stock trading can be a great way to supplement your income. There is a learning curve (an online stock alerts service or free trading course can really help), but it is not as scary as it may seem.
The risk involved with trading stocks can be controlled (this is our favorite part of trading!). Despite what the media may portray, stock trading is NOT gambling. However, it can be extremely difficult to control your emotions during trading. Fear and greed need to be carefully controlled. If you like the mental challenge, stock trading might well be for you!
The goal of this article is to introduce you to the basics of active stock trading as a way to supplement your income.
How to get started as a stock trader
Investing in stocks is very different from trading stocks. We primarily trade stocks, which involves buying and selling many times throughout the course of a year. Sometimes we buy a stock and sell it the same day. This is quite different from investing – investors tend to hold stocks for several years.
Active trading allows you to make larger percentage gains much more quickly than you would if you held stocks for many years. It is not unusual for experience traders to make 10% profits on their capital per month! Much better than the 0.01% per year that your bank offers…
The free online platform we use to trade stocks
To buy and sell stocks you need a brokerage account. Luckily, these are readily available as online platforms that make buying and selling stocks a breeze.
We use one called Robinhood because there are no commissions to buy/sell and no minimum balance required.
This is amazing considering many conventional brokerages will charge $6 – $10 per transaction and require a $10,000 to $25,000 minimum balance. This is a HUGE advantage for a new trader because it allows you to start trading with a tiny amount of capital while you are learning different strategies.
Important trading tips
Here are some of our golden rules for trading stocks.
1. Never trade more than you can afford to lose.
2. Cut stock losses quickly.
3. Let your profits run.
4. Emotional trading will lose you money. Stick to your plan.
Our advice to new stock traders is to keep it simple. Learn a few of the stock trading strategies very well and stick with those. Only trade the very best setups that you find. We call it trading like a sniper! Be sure to learn everything you can about trading stocks because knowledge is power in this business.
Our successful stock trading strategy
We mainly trade low cost stocks. Typically, we will buy stocks in the $1 – $20 price range. The reason for this is that these cheaper stocks tend to be more volatile and give more opportunities for large short-term gains.
It is not unusual for us to make 20% – 30% on a stock trade in two days – this would be impossible trading Apple or Facebook stock because they just do not make those large percentage price moves on a daily basis.
We also do not really care about the fundamental financial health of the companies that we trade. In the long term, this is important information, but it is mostly irrelevant for short-term trading. Most of the companies that we trade are terrible companies. We still make profits from trading these bad companies due to the predictable, but volatile nature of the stock price.
Technical analysis – patterns in the price charts of stocks
We use a well-known technique called technical analysis to try to predict the price direction (either up or down) of a stock. The reason that this works is that human emotions govern trading. People look at price versus time charts that show what the stock price does over time.
A complete tutorial on the intricacies of technical analysis is outside the scope of this article. However, I will try to outline the strategy that my wife and I use to make some extra money trading stocks.
Often there are patterns in the price action that repeat over and over again! We buy into a stock that has one of these patterns and anticipate the next part of the pattern. Other traders recognize the price pattern that is forming and purchase the stock as well – making the pattern self-fulfilling!
How to trade channel patterns – our favorite chart patterns
There are literally hundreds of classic price patterns that expert traders can recognize and trade – I want to introduce you to just one of the simplest patterns – the ascending channel pattern. This pattern is easy to identify, and it can be traded by just drawing two lines on the chart.
This may get a little bit technical, but the main point we are trying to make is that stock prices often behave in a predictable way.
An example of our favorite ascending channel pattern in a price chart (Amazon) is shown below.
At first glance, this type of charting may seem intimidating. But all it shows is the price of Amazon over the course of 8 months. You can chart any stock like this for free at Stockcharts.com.
The main concept of trading a channel pattern is the idea of support and resistance. There are price levels where buyers tend to step in and purchase the stock (support) and where people tend to sell their shares (resistance). The support and resistance lines are drawn in on the chart above (blue lines).
The stock price tends to bounce between the support and resistance lines. The trick is to be able to spot a channel forming early on. In the chart above, the blue lines that form the channel started between April and the middle of May.
This is a key concept – stock prices are not random, and they often follow predictable trends and patterns!
The support and resistance lines join the lowest points of the chart and the highest points that define the channel. The lines are extrapolated upwards in price to give an idea of what the channel could look like in the future. It is important to realize that this is just a prediction at this point!
In the case above, the channel did indeed continue all the way until September. The red circles show areas that could be potential points to buy the stock. Usually, I wait until the price has ‘bounced’ up from the support line to buy shares.
Deciding on when to sell your shares is difficult but usually you would sell when the stock rises up and meets the resistance line. This process can be repeated as long as the upwards trending channel is intact.
The green arrows that we have drawn on the chart indicate price areas for potentially buying and selling shares. There are many other opportunities in the above channel pattern for Amazon that a trader could have profited from.
At some point, in this case the middle of September, the price will break through the support line. When this happens, it is important to sell the stock because you now have no idea how low the price might fall.
Stocks that are trending up in a channel pattern may continue for days, weeks or even years. The key to managing this type of trade is to make sure that if the pattern is broken that you sell your shares. Risk management is crucial in trading.
Price patterns do fail – be prepared for it
It is important to realize that price patterns are not guaranteed to continue – they just represent high probability trade setups. The key to trading patterns is that you must define a level where you think that the pattern is not working out and sell your stock – even if it is for a small loss.
This disciplined approach combined with only trading the high probability price patterns is how we consistently make money in the stock market. Even the best patterns only work out 7/10 times, so it is important that you do not let the 3 losses cancel out the 7 wins!
There are literally hundreds of other price patterns that are well documented and frequently traded. You can see the main three simple chart patterns that use every week to make money trading.
Conclusions
Trading stocks is an unusual (but potentially lucrative) side hustle for anyone working from home. Entering the world of stock trading is far easier than any other profession that offers similar earning potential. A successful trading career only requires $100 – $1,000 starting capital and the motivation to learn the skills required.
Perseverance is not a long race; it is many short races one after the other.
–Walter Elliot (1888-1958), Scottish politician
Character consists of what you do on the third and fourth tries.
–James A. Michener (1907-1997), American author
The only courage that matters is the kind that gets you from one moment to the next.
–Mignon McLaughlin (1913-1983), American journalist and author
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Del the Trader is a full time day trader, trading small cap low float stocks using technical analysis, volume profile, market profile, order flow analysis.
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