There’s a few different reasons why people don’t make money in the markets. A major reason why traders have a hard time making money in the markets is because they don’t differentiate in terms of their time frame. So traders may use a strategy that’s meant for the short and they’re using it for long term trades, and vice versa.
One of the easiest ways to get rid of that problem is by making sure you differentiate between generating income in the market versus generating capital gains. It’s important to have different strategies for for each. That’s because when you generate income in the market, that tends to be strategies that are more near term oriented.
It may be days, weeks at most. However, anything else beyond that … and I guess they’re drilling something here in the office building. Anything beyond that is more capital gains oriented.
I want to show you a strategy real quick right now that I discuss more about in my free book. You can check out the video below, or keep reading for a thorough description of it.
What you see here is Nvidia. This was an intro day chart for this stock for a week or so ago about the 11th of May.
What you see happened is the stock gap is lowered very quickly within about an hour and a half or so. If the opener or something like that, ended up fully reverting back to the close, we call this the open gap trade. This is a very specific, what I like to call an income strategy. We ended up making a quick 1.8%, about $250 very quickly with just a one contract.
The point, however, is that this should not be turning into a capital gains trade. This is a pure day trade in that sense. I’m not a day trader, but I do think it’s actually important to have strategies that work for both income and for capital gain.
In fact, most people want to generate that income. But a lot of people also want to have their nest egg grow over time. That’s exactly why I think it’s important to also have both types of strategies.
In any case, don’t mix day trading or income strategies with a capital gain strategy. They’re separate things. Some traders even have separate brokered accounts which is actually pretty smart.
I’m not saying you have to do that but if you can separate it somewhere else, that’s good. But it is important to differentiate between something that is a cash flow trade, a trade that you want to trade monthly or quarterly income from such as these gap trades like we did here. The trade I mentioned was open an hour and a half and we made a quick $200. However, it’s just one contract. Differentiate between that and you longer term capital gains goals.
If you’re interested, I’ve got more secrets I spill in my free book. Click here to download it now.