You can make a living trading stock, but chances are you’ve read tons of articles about how complicated it is. And while they’re not entirely wrong, trading stocks can be a very lucrative business if you’re dedicated to learning.
Most importantly, the knowledge of the market and consumer trends is forever and can help you in a lot of other avenues in the financial field.
You don’t need to be a math genius to understand the logistics of day trading because we make it simple to understand how trading stocks can earn you a livable income.
Read on for four steps to making a livable earning trading stocks.
Table of Contents
Step One: Compile Your Army of Trading Tools
There are several ways to get your foot into day trading.
These are some of the most common ways beginner and novice traders start profiting from various trading tools.
Stock Funds
It’s very simple to buy stocks of a company. These company stocks become more valuable as the company thrives on the market, and investors pay top dollar for your shares once they seek interest in that company.
So to start profiting from stocks, you’ll first need to determine what kind of stock portfolio you want to build.
Tactical traders like virtual market prodigy Julie Yoon diversify their stock portfolio by investing in multiple companies because it boosts their chance of success.
Mutual Funds
Having multiple stocks across different companies (tech, arts, sports) maximizes your opportunity to earn large profits, so along with building an army of diverse stocks, you’ll also want to set aside a budget for mutual funds and ETFs.
Also known as equity mutual funds, mutual funds compile stocks of several companies for more of an initial investment.
Mutual funds have shares in multiple companies, so trading them can turn you a hefty profit with lesser risk.
Stock Funds (Cont.)
Buying stocks can make a profit over time, so you’ll need to develop a sound trading strategy if you want to profit from day trading. Some of the most popular strategies include leveraging; although it’s not the most praised strategy for trading stocks, it works nonetheless.
Treasury Bonds
Investing in debt may seem less than ideal but it turns a nice profit at maturity.
Bonds are considered low risk because of their modest return, and they usually take about two years to mature.
With proper planning, clusters of treasure bonds can provide supplemental profit to your day trading business.
Real Estate
A newer way to day trade is through real estate, and it comes with about as much risk as bonds.
Real estate shares turn a profit by investing relatively small amounts of money into a network share of other real estate investors; this practice is known as crowdfunded real estate and can produce a hefty profit if the property increases in value.
This is ideal if you’re looking to get more exposure to real estate and house flipping with less upfront risk.
Like with any stock, you’ll need to do your due diligence before purchasing Real Estate Investment Trust stocks.
However, by purchasing REITs, you can turn a significant profit in the real estate business without the nuisance of tenants, renovations, and maintenance.
CDs
One of the most ancient ways to day trade is through Certificate of Deposits (CDs), however, they’re secure and return a good profit over time.
CDs are secure because they require an investment into your bank and pay out a flat rate interest at the end of the loan period.
Where’s the profit? Over time your deposited money accrues interest that the bank will owe you at the end of the loan period. So, it may not be optimal for getting rich quickly, but for the dedicated day trader, it’s a sure way to support living off stocks.
And of course, the larger your investment, the larger your return. So, with multiple CDs, you can earn a return of twice that in which you initially invested.
The only downside is you can’t touch this money at all– not even to invest in other avenues.
Step Two: Budget Your Army
Making a living trading stock requires an investment capital upfront, so it’s vital to open an investment account with an allocated budget before you can begin trading stocks for a living.
What money should you use for this budget? For starters, not any money you’ll need in the next five years or so. The best kind of cash to deposit into an investment account are:
- Job bonuses
- Birthday money
- Tax refunds
- Court Settlements
- Any money you won’t need anytime soon
The worst kind of money to invest:
- Emergency savings
- Tuition
- Retirement funds
Investment Accounts
Take day trading to a new level by allocating your assets into an investment account. A brokerage account is easy to set up and can get you on the right track to earn a profit off of the money you’re not currently using.
Most brokerage accounts require little to no startup investment, but you’ll obviously need to fund the account if you want to buy stocks. You can do this by adding money directly into your brokerage account from your bank account.
Brokerage accounts act as ‘middlemen’ between you and potential investments. The money is held in the account as you buy and sell shares and can turn a profit by building interest.
There are several reputable online brokers, such as Wealthfront that offer up to 0.35% APY on cash accounts, so as long as you have a considerable investment in your account, you can make a livable profit just from trading through an online brokerage.
Robo Advisers
The trading strategy of the 21st century is Robo-advisory.
These automated brokerage systems turn profits by allocating your desired investment into several stock funds and treasury bonds.
There are many top-rated Robo advisors online that can generate income. Robo Advisors create an investor profile on your behalf, based on your demographic, susceptibility to risk, and investment capital.
This information is used to find profitable stock funds and bonds based on your predicted habits.
What’s the benefit of this? The long-term support of a Robo advisor can help you notice patterns in your investments and give you the advice to keep your profile strong. This is important if you’re constantly pursuing day trading goals.
Step Three: Diversify Your Profile
Like we mentioned earlier, a successful day trader has multiple stocks in several companies.
By diversifying your trades, you can lessen the risk of one company having too much control over your investment value. Of course, you wouldn’t want one bad market surge to impact your entire year’s interest, so you have stock in multiple companies to ensure surges don’t detrimentally impact.
With more investments, you can focus on companies that interest you and explore additional stocks within them while still making money from other shares.
To add to this, it’s important to invest in companies that interest you because it increases the likelihood of you wanting to learn more about investing through these companies.
As you learn more, you’ll make informed decisions on when to increase your investment or buy additional stocks.
Things to Avoid
Day trading has certain risks associated, as with any profession.
Here are some things you’ll want to avoid if you want to make a living trading stock.
- Penny stocks– stay away from suddenly-cheap stock. Chances are they’re cheap for a reason.
- Bandwagon stock– Bitcoin users lost over 75% of their investments between 2017 and now due to failed hype.
- Lack of patience– even with a large initial investment, stocks take time to grow and curate profit. With that being said, day trading doesn’t happen overnight– it takes time and patience that you must be willing to dedicate along with a large sum of cash.
- Failing to diversify– there’s no plainer way to put it. A diverse profile is less likely to fall victim to market surges than an undiversified profile.
Step Four: Invest in Yourself
It’s timeless advice, and it holds true even in the trading business. If you invest in yourself, you’re sure to succeed.
Luckily, there are several tools accessible for day traders of all levels online.
If you’re new to the stock market world, don’t worry; you’re not alone.
In fact, since the recent global pandemic, JMP estimates an average of “10 million new accounts in 2020,” many of them opened by young, new investors.
With so many new investors in the game, tools and resources have been derived from reputable sources all over, such as from the graduate school of Stanford Business, who’s now offering a free online course to teach stocks and bonds, and deepen your understanding of investing.
Lastly, be open to criticism! We often get caught in our own emotions about what we expect something to be and what it actually is.
Try not to let fear or greed cloud your judgment, one of the most tactical approaches you can take as an investor is learning from other’s mistakes. A lot of the time, patient investors can benefit from fellow investor’s impulsive decisions.
Conclusion
To make a living from day trading, you’ll need more than a good amount of money. However, if you’re willing to put in the time, dedication, and education necessary to grow your investment, it’s a tactical way to make a living.
As mentioned above, it won’t happen overnight. It’s important to consider this when allocating funds to a brokerage account.
This is important to note because people often jump into investing without proper planning. This can lead to drastic losses, contract breaches, and long-term frustration.
Save yourself the trouble by first finding one or two avenues for investing that interest you most.
Next, budget and allocate a certain amount of money to these investment tools.
Additionally, diversify your profile and make multiple stocks work in your favor.
Furthermore, a successful day trader has plenty of opportunities to grow, so be patient with the market and yourself.