Last Updated on 20 April, 2023 by Samuelsson
Trading is considered a prime field for fortune hunters. Many people looking to make money enter the trading world with a hope of raking in profits. A large number of people take up trading full time and dive into it completely. Others often want to use trading as a side hustle, making money while having the security that a full-time job provides. Today, we take a look at those people who want to keep trading as a hobby and discuss whether or not trading can be a hobby.
You can trade and have trading as a hobby, but it is going to require a lot of time. For those having trading as a hobby, some trading forms and styles, such as swing trading or algorithmic trading, are better than others. That’s because they are fairly flexible in that they don’t require you to be around the computer all the time!
Before we look at some trading forms and how they suit someone who wants to trade as a hobby, we are going to debunk one of the most common trading myths!
Busting the Trading Myth
Before we dive into how you can trade as a hobby, it is important to have the right mindset. Forget about all the advertisements that say ‘You can make millions from trading instantly!’ While it is possible to make millions of dollars simply by trading, it is not easy and nor is it quick.
Trading is something that requires you to invest a lot of time and energy. This is even truer during your first few months or years since you will spend the majority of your time learning how to trade. Once you understand all the basics, you can slowly study more concepts while you start to trade with real money. You never stop learning as a trader as there is always someone better than you who can teach you a thing or two.
This problem is exacerbated by the influx of new traders that enter the market every single day. Everyone wants to be rich, and the financial markets are one of the best ways to make money. This means that you are competing with a lot more people, and you need to beat a lot of them to turn a profit.
Why People Choose Trading
People turn to trading since trading has much greater profit potential than investing passively (aka value investing, which is generally considered a safer approach than trading). Trading allows you to increase your returns massively if you are willing to put in the effort, and thus people believe in their abilities to outperform the market.
Old Doesn’t Work Anymore
Many of the strategies that you could use just a couple of decades ago are almost completely useless right now. Trading has become much more advanced, and it continues to become more advanced every single year. As such, you cannot be complacent when you are aspiring to become a successful trader.
However, this doesn’t mean that easy things don’t work still! They do, but not those that are commonly known, and used by everybody!
How to Trade as Hobby
The most popular form of trading for new, aspiring traders tends to be daytrading. In daytrading, you never hold a position overnight. Daytraders try to make a tiny amount of profit on each trade and then use leverage to magnify their returns.
Sadly, daytrading is not an option for you if you do not have a lot of time. Daytrading requires you to be extremely vigilant during market hours (especially the first few hours since liquidity is at its maximum) and constantly make trades to turn a profit.
In addition, daytrading is extremely hard to master, and nearly nobody day trades the markets discretionarily anymore!
However, the good news is that you have multiple other forms of trading available to you. You can swing trade, position trade, or trade based on algorithms. While it is impossible to delve into them in detail in this short article, we will only take a quick look at each of them and see how they differ from one another. At the end, you will be able to make a decision on which form might suit you best!
Swing Trading
Swing trading is a trading form that does not require you to put in a lot of time. Once you become adept at swing trading, it is possible for you to trade efficiently without having to spend more than maybe 15 minutes a day!
Instead of holding positions for a few minutes or hours like you do in daytrading, you instead hold positions for a few days or weeks. You try to capitalize on slightly longer trends in the market and the profit per trade is usually much larger than it is in daytrading.
Swing trading usually is the best trading form for beginners, since it’s easy to learn, and doesn’t require too much of your time. If you want to learn more about swing trading, we recommend that you have a look at our guide to swing trading!
Swing trading is also a great trading form if you want to trade with a full time job!
Position Trading
Position trading is another form of trading that does not require you to put in a lot of time in order to be successful. In position trading, you might end up having an open position for anywhere between a few weeks to a few years.
Position trading is long-term, and position traders do not care much for short-term price fluctuations. Due to its long-term nature, many position traders often trade based on fundamentals.
However, there are position traders who engage in active trading based on technical factors as well. One common way to position trade is through the use of support and resistance levels. The higher profit potential in trading also carries a higher risk, and it is up to you to decide which method is right for you.
Advanced position traders often make simultaneous use of fundamentals and technical analysis to achieve significantly greater returns than their contemporaries. One way these traders often act is to invest in companies based on fundamentals but use technical analysis to determine entry and exit points.
Related reading: How Do Traders Make Money?
Related reading: How Often Can You Trade Stocks?
Algorithmic Trading
In our opinion, algorithmic trading is the best trading form out there, by far! If done correctly, it is by far the most effective method that has the potential to lead to the highest returns.
Algorithmic trading revolves around having a computer do your trading for you. However, you do need to input your own strategies into the computer which it uses to then trade in the markets. With algorithmic trading, it is possible for you to run 100s of strategies at the same time. The problem is that creating an effective strategy that can easily net you cash can take quite a lot of time. However, once you have a decent strategy, however, you could start trading right away.
The Robust Trader’s guide on Algorithmic Trading is a great place to start learning the basics of algorithms and the psychology required to trade properly. Another great piece to read would be the quotes of Ed Seykota, one of the greatest algorithmic traders of all time.
Related reading: Do You Need To Be Smarter Than Average to Be a Trader?
Bottom Line
It is possible to trade even if you do not have a lot of time. However, you will still need to invest a fair bit of time in order to properly learn everything that you need to be a successful trader.
In order to trade as a hobby, you need to use a trading form that does not require you to put in a lot of effort every single day. Daytrading is a big no-no for you, but the three aforementioned options can be a great way for you to make money without sitting in front of your computer the entire day!
If you enjoyed this article you might also like our other articles answering common questions traders have!
Do not miss our article about Peel Off Trading.
