Most good businesses that last have multiple streams of income. If you ran a coffee shop, pastries are the logical add on. Trading is no different.
Like most traders, you have a favorite set up and an edge you rely on. Once you have been trading for a while, you will realize that market moods change. Edges once considered reliable start to falter. Trends change. Stale strategies often get left behind in the trading-wreckage landfill.
Your challenge is to develop a trading pipeline of innovative tactics. The proverbial “having more than one trick up your sleeve” comes to mind. Always be searching for new profit sources so when the market changes, you will be ready to capitalize on it. When you own your own trading business, you need to think like an owner.
If you have the habit of sitting down at your trade station just before the market opens, trade through the day, go home and repeat this process daily, you are acting like an employee. I don’t care if you trade at a café or you own your own trading business, you are acting like an employee. It’s no different than what any other employee does every day.
When you own and manage your own trading business correctly, you need to work on your business, not just in it. You can do that by consistently looking for your next edge with fresh sources and ideas. Every edge you have that is well developed and understood is the product you are providing to the market. If it’s a good product, the market will pay you well for it.
Previously I have reviewed several key metrics to objectively track and keep score for your trading business. Those metrics can help access every one of your trading streams of income. Very few traders look under their business hood to see where they actually make money. It is even more important to plug the holes that allow you to lose capital.
When you look to diversify your trading business, be sure you are not simply replicating the same strategy over and over. Uncorrelated strategies are best. Below are a few thoughts to get you started. Simply pick choices that you haven’t already explored.
- If you’re a day trader, consider different time frames.
- If you’re a swing trader, consider a day trade once a week.
- If you only trade equities, consider currencies, futures, or commodities.
- If you only trade equity tickers of individual companies, consider ETFs or Indexes.
- Consider different setups like gap trades, earnings plays, reversion to the mean trades, etc.
- If you trade call or put options, consider an iron condor or a spread option.
Think of your business as a collection of different trading systems based on how the market is trading and what edges are working. Once you find a winner, ride it until the music stops playing that trades tune.
Once you have a good basket of trading products, it’s simply a matter of tracking your performance over time. A broad overview of your trading will provide some great clues as to what has the highest probability to produce the most for your efforts.
Enuf said.