Why You Should Start A Stock Trading Side Hustle
Our buddy Russell shares some awesome stock trading tips in this guest post. Enjoy!
I started trading stocks online in 2014 to try and make some extra money as quickly as possible. I think it’s fair to say that stock trading has dramatically improved our (my wife Maleah and I) lives and changed how we live forever.
We started trading stocks when we were living in rainy Seattle and living paycheck to paycheck. I was working at a demanding full-time job but still struggling to pay our bills. I had to get up at 6 am to start trading stocks at 6:30 am when the stock market opens on the west coast.
Looking back, it is pretty amazing that we didn’t just lose all our money! Somehow, we were able to make quite a few thousand dollars and paid off some our student loans. I vividly remember the excitement, hope, anxiety and ecstatic highs that were part of our first steps into online stock trading.
We still trade stocks and write about our trades on our stock trading review website.
Why Start a Stock Trading Online Business?
We only spend about 1 hour a month buying and selling stocks (spread throughout the month). We made a few hundred dollars last month on a starting balance of just $500.
Here are the top five reasons that we LOVE stock trading as a side hustle.
- Stock trading is one of the most exciting side hustles you can do! It is really fun to trade stocks.
- You can make money quickly. Literally you can wake up to find that you are $5,000 wealthier.
- You can start with a small amount of capital and grow it via trading over time.
- Unlimited earning potential. Limited only by your ability, capital and effort.
- Very flexible hours, you can buy and sell stocks whenever you want throughout the day.
These are just some of the reasons that we love stock trading. Learning to stock trade is a pretty fun experience as long as you manage the risk involve. So just how risky is stock trading?
Further Reading: Learn How We Paid Off $20,000 In Student Loans
How to Control the Risk in Trading Stocks
If you listen to the mainstream media, you probably think that most people that start trading stocks lose their house. The difference between trading stocks and gambling is that the risk involved in stock trading is controllable – it is not just luck.
A good stock trading strategy that minimizes the risk involved and maximizes the potential profit will help you to realize that it is not just gambling and hoping to make money. We highly recommend learning these three stock trading patterns that offer high probability trade setups.
If you are emotional, you might find stock trading to be a bit too intense for you. Emotions like fear and greed can ruin your chances of trading success. Why? Because stock trading is a mental game! If you become fearful or greedy when it is not advisable then you will end up completely screwing up your strategy by holding stocks too long, buying too many shares or selling a losing position too quickly for a massive loss. You need patience and discipline to trade stocks successfully.
In this short article, we would like to give you a brief introduction into the world of stock trading. If we can inspire you to start a stock trading side hustle or start investing in stocks, then our mission will be complete!
Short-Term Trading Versus Investing in Stocks
Trading stocks is quite different from conventional investing. How? We only buy stocks for a few days then sell them (hopefully for a profit). We aim to just profit from short-term volatility in a stock without caring too much about the underlying fundamentals of the company.
Investors will generally hold a stock for years based on some underlying growth potential or belief that the company is undervalued and that the stock price will continue to grow steadily over many years.
Sometimes we will buy a stock on a Friday and sell it when the market opens on Monday. We only care about holding a stock until the price has increased 10% to 20% and then we sell it and move on.
The main advantage of short-term trading is that you can make much larger percentage gains than with investing. We regularly make 20% profits on a trade in a single day – something that investors might take a year or two to accomplish.
While it is true that there is some more risk associated with short-term trading, there is also risk involved with investing as well. Greater exposure to the market over a longer term with investing means that global economic events often influence the stock price of a company. Additionally, a company that you invest in may fail to perform which leads to a decline in stock price.
Which Online Brokerage Should You Use ?
One of the first things that you will need to start trading stocks is an online brokerage account. We have used many different broker accounts including:
If you are just starting out, I highly recommend RobinHood. It is an app that can be put on your phone (they also have a platform you can use on any computer). RobinHood allows you to trade for FREE with no minimum account balance. The other brokerage accounts usually charge $5+ per transaction and often require a minimum balance of $10,000 or more. RobinHood is perfect for swing trades (1-4 day holds).
The Rules That Millionaire Traders All Follow
The secret to managing risk in stock trading starts with some golden rules:
- The first rule is the most important. NEVER let your emotions dictate what you do as a trader. You should always have a plan (entry price, stop loss, profit zone etc.) and follow it like a robot.
- Be greedy when others are fearful and fearful when others are greedy.
- Always have a price that if the stock falls below you will sell your shares to avoid a bigger loss. This is called a ‘stop loss’. Not having a stop loss is one of the biggest mistakes a new trader will make. Cut your losses quickly to preserve your capital. You can always buy a stock back if your original hypothesis is reestablished.
- Make sure that you are patient and allow your winning trades to reach your calculated price targets. This is important to make sure that how much you make on winning trades more than cancels out the losses you will have on the losing trades.
Learn A Simple Stock Trading Strategy
We learned to trade low cost stocks that trade under about $10 per share. These stocks have a lower number of outstanding shares which means that the price changes dramatically when news comes out. As a trader this volatility is what we want!
The companies behind these stocks are generally pretty bad. The usually don’t have any real products or cash-flow. Often, they have a lot of debt and some are downright crooked. But we don’t care because we don’t invest for the long term – which is a good thing as most of these companies’ stocks fall to zero eventually!
Chart Patterns Indicate The Likely Price Direction of a Stock
The majority of people that don’t trade stocks think that the price just varies randomly. Traders know that the price can often react in a predictable way, especially to news events. There are patterns in the price action over time that you can learn to spot and profit from.
Using patterns in the price action of stocks is a well-established practice called technical analysis. Different patterns form over time that allow the savvy trader to predict the likelihood of the stock price either going up or down. Of course none of these chart patterns or indicators are 100% reliable, rather they just offer higher probability setups.
Technical analysis is expansive and outside the scope of this article. If you would like to learn more about the subject, check out this site for more info.
The Simple Channel Pattern
The easiest pattern that we use to make money trading stocks is called the channel pattern. An example of this pattern is shown in the price chart below. The stock is Amazon.
The chart plots the price of Amazon stock over a 9 month period. You can use the free charting site called Stockcharts.com to make these charts. The blue lines that I have drawn on the chart show the price channel that has formed. You can see how the price quite reliably bounces between these two lines for months! The channel formed between April and June and many investors spotted the formation and started buying the stock when the price was close to the bottom ‘support’ line and then sold it when it touched the upper ‘resistance’ line. The green arrows show where we bought and sold the stock in this channel pattern.
Predictable patterns often form in stock price patterns because the people that buy and sell stocks often have the same thought processes. It is kind of like they all know about the patterns that form and trade them in a similar way.
Remember To Cut Your Losses Fast
Always remember that price patterns don’t always stick to the pattern exactly. If they did then we would all be rich! The patterns often break down and very quickly you can find yourself losing money. Just look at what happened in the chart above in October! The price broke down through the support line and continued downwards for months.
The traders that are profitable over the long-term are the ones that can sell their position the moment a pattern is clearly not holding up. It comes down to good risk management. Sure, the patterns work 60% to 70% of the time, but it only takes a single large loss to wipe out all those gains from your profitable trades.
Stock trading is a fantastic and fun way to make some extra money from home. It is challenging and by no means an easy income source. We make money from other sources of income including blogging, writing and proofreading (Proofread Anywhere course review). Stock trading allows us to amplify our earnings and diversify our income streams.
With the RobinHood app you can get started trading stocks for a $100 or even less! You have very little to lose by learning to trade and you might just add another source of income to your household.
About The Author: Russell Barbour
Russell and Maleah blog about stock trading on StockMillionaires.com . They started stock trading in 2014 and blogging about it in 2015. They achieved financial freedom in their early thirties and now travel the world looking for a place to call home (currently they live in New York). In 2017 they started a blog called UnconventionalProsperity.com that helps other people learn how to make money online and escape the corporate rat race.