Trading or Investing for income

[stargazer]

Hi all

Whilst i am not a total beginner still haven't found the area where i am comfortable so to speak.

I mainly like to generate income from my investing instead of the long term capital gain type investing.
I am still not clear where i should be concentrating my energies to specialize to achieve the results i am after.

I normally will look at daily charts for stocks ASX... haven't really looked at anything else. Not really keen on the Dividend type income but more of price goes up and sell making a certain amount each time or minimise loss and repeat if that makes sense.

Tried this but got hit during the GFC prices just dropped so quick cost me plenty but also had very liitle experience at the time.

Would like to start again, as indicated above, at this stage its about starting small and mastering just a few set ups for example.

I know back test, use indicators, read the charts etc

Any one here making an income like i am suggesting and which time frames do you find best.

I use the E trade interactive charts thats it so not a real classy platform do you really need one.

Should i be looking at longer time frames eg weekly charts or shorter as in daily or hourly etc

Don't really want to glued infront of the computer 8 hours a day but happy to put the hours in to refine and try.

Any help would be appreciated.

Cheers
SG

 

[KurwaJegoMac]

Hi Stargazer,

There is no right or wrong time-frame for generating income. As you've no doubt seen, people have generated income over very short, medium and long terms (think 1 hr charts, daily, weekly, monthly, yearly, etc) using T/A, F/A and everything in between. What's key is to find what works for you. If you're hoping to live off your income then that's different to someone who's just hoping to earn extra money.

For example, you could be very good at fundamental analysis and invest using yearly charts. You capture large trends and make a compounding 15% yoy for 10 years. Now provided you don't need the money now, you can hold it for 10 years for that great gain. But if you need to live off that income every year you don't have the luxury of employing a long term strategy.

My personal way of trading uses a weekly view over several months. There are a few traders here who use daily charts and some use hourly - there is no right or wrong way and each has their advantages and disadvantages. I'm happy sitting on a trade for as long as it keeps going up. Others get out at certian profit targets, or stagnation points, etc.

For me I spend about 30 minutes each day with a simple scan for possible trades as well as entering new positions and applying/adjusting stops. While i don't have to be glued to the screen the whole day to execute and manage my portfolio, there is time that goes behind the scenes to get me where I am. (Testing, development, research, new ideas, etc)

Regarding the platform I use, it's Amibroker. While eTrade is decent it doesn't allow for backtesting or system development or design so that's why I use Amibroker. I find it does everything I need but bear in my my requirements will not be the same as yours so you'll need to do some research.

To sum up: There is no 'right' timeframe. It will depend on your personal circumstances, goals and system. You need to clearly define these first - the timeframes will form a part of your system which will be based on your circumstances and goals.

 

[Whiskers]

Hi stargazer

This is a common dilemma and I would agree with KurwaJegoMac. You have to find what suits your circumstances.

Probably the first thing I suggest you do is a personality analysis. There are a number of ways to do this, but the important thing is you have to be brutally honest with yourself to determine your 'natural' persona, strengths and weaknesses. Your natural persona is simply a reflection of your genetics and the environment you have traveled through to this point in life. Once you have done that you can plan to change and improve any limiting personality traits with further study, practice or counseling etc.

Secondly, you have to identify and list your limiting factors, ie available time, ready cash and other available funding sources and current knowledge and expertise. Then, consider which of the limiting factors you would like to, or are able to change... and consider a plan to achieve that.

Then you can better work out a strategy to trade that will work with your limitations and expectations.

For example, my persona is naturally very analytic, so research and analysis is comfortable for me. But I'm in a minority. Generally most people are much more 'do'ers', ie they like to make quick decisions and get on with it. But, regardless of your natural personality, which includes your learning and behavioral style, you can learn to improve on your weaknesses.

I like to be pretty flexible with my trading. I like to follow a trade and the market(s) pretty closely at times, but also like to be able to come and go to do other things.

I don't use systems per se, but I use scans occasionally to find new opportunities. But mostly I like FA tempered with TA and EW, weekly down to daily mostly, to determine my trades.

Some trade stocks purely on TA without knowing a thing about the stock. My personal preference is to know my stock, the people behind it and as much as I can about the industry as I can to get a good feel, like second nature, for how it's traveling. Using all this accumulated information I prefer to follow the stock and trade it's swings on expectation of good news, general industry and market movements etc.

When I have more time to trade or just want to trade more, I also dabble in forex and commodities... but the same rules apply.

But at the end of the day, the test for whether or not it's working for you is whether or not you are feeling relaxed or stressed with your decision making. If stressed you have to identify what is causing the stress, ie impatience for a gain, uncertainty of your trade decision or outside factors (family, neighborhood or other) that are clouding your ability to focus.

It's a jungle out there... but once you find your correct path, you will just know it.

 

[TulipFX]

The biggest issue with trading for an income is the cost of living pressures.

When deciding you are going to trade for a living, you should have 6 months saved money in the bank for you to live on.

You cannot take a trade to pay the powerbill. That will not work.

 

[So_Cynical]

Trading or Investing for income

Both

 

[The General]

On a related topic, that of trend following vs other trading 'methodologies':

A large number of professional (easily the vast majority) of professional independent traders DO NOT use trend following techniques to earn an income. This is because with trend following, no doubt you will have some large gains, but that could be an indefinite length of time between pay days. This sounds obvious but this nuance is lost on most. If you want to trade for a living (ie earn an income) then below is the 'approach' that most of the pros use:

They trade intra-day.
They trade with a perceived edge (historically 'validated').
They trade as many times as opportunities on that perceived edge exist as possible.

Why the large number of trades ? Simple: If your actual edge is 60% (distinctly different from a perceived one) and assuming a 1-for-1 Profit and Loss, and you make 100 trades in a day, the chances of you ending the period in question (day) with more wins than losses (ie making a net profit of some amount for the period (day)) is very high at approx 97% if I have entered the formula correctly in our friend Excel.

Just my 2 cents...

 

[AlterEgo]

with trend following, no doubt you will have some large gains, but that could be an indefinite length of time between pay days.

True, but that shouldn't really matter if you have the next year or two's pay already put aside. I don't think it would be wise having to rely on making a profit every month to pay the bills. Would be better to have a substantial sum in a separate account for living off, which you can top up occasionally when you have the profits to do so.

 

[The General]

Understand where you're coming from but people will not (usually) be able to do what you're suggesting.

The simple truth is that the pros trade for income. They have bills to pay. It is their job. That's what sets them apart - you can guarantee that they didn't start full time trading with a couple of years of income saved up to live off. Couple of months maybe...

Again, just my 2 cents...

 

[TulipFX]

Trading under pressure is not ideal. If you can not be influenced by your need to earn a trade to pay the electricity bill then that is fine. The risk is you won't.

Personally I am no good at manual trading for this reason and stick to purely automated systems.

 

[stargazer]

Hi all

Thanks for your replies and some food for thought.

Cheers
SG