A lot of people dream of making money passively. Making money on auto-pilot. Who doesn’t want that? In this article we look at how you can make money passively without too much effort. The good thing about passive trading is that there are a lot of different strategies that you can use: from reasonably passive to completely passive. We begin with a reasonably passive strategy and after that we will discuss a completely passive strategy.
Reasonably passive trading with high return
I don’t do completely passive trading because this doesn’t yield the most profit, usually. Before we go into completely passive trading, we will look at reasonably passive trading first. This strategy requires a few minutes of your time every day. This could potentially earn you a profit of between 10 and 40 percent annually.
It’s important that you choose a few instruments and keep your eye on them. These instruments can vary between stocks or currency pairs. It’s important to know what they are and to know something about them. Then you should check them daily and study the chart to try and find patterns that you can use. There are three possible situations:
Situation 1: trend – the price is mostly going down or up. With a downtrend you sell after the spike and with an uptrend you buy after a dump.
Situation 2: consolidation – the price is mainly moving between clear points. Sell the effect on the highest point and buy on the lowest point.
Situation 3: trend reversal – is there a horizontal level where the price won’t breakthrough? Then there’s a chance the price will go the other direction soon.
It’s important that you do this semi-passive strategy with an online broker. The strategy doesn’t work too well with traditional brokers because of the high transaction fees. In order for this strategy to work, you need to be able to close a position quickly and at will.
Completely passive trading
It’s also possible to trade completely passively. You do a few trades once and you don’t touch them after that. This isn’t the most profitable way of trading, but it does save a lot of time. With completely passive trading, you usually buy something physical without the intention to sell it for a couple of years.
It’s important that you have quite a lot of money to invest and it needs to be money that you can miss for a few years. The return on stocks, for example, is usually around 7 to 8 percent. For a nice annual pay out, you need quite a lot of money to begin with!
When you want to trade completely passively, you can select the instruments yourself. The selection is very important because you’re going to hold them for a long time. It’s also possible to put your money in a fund; this is fully passive as the fund does all the work for you. It’s important to keep in mind that you need to pay a fund management fee. This pays the fund to manage your capital.