Trading stocks, futures and currencies for passive income

Normally I would not propose trading stocks, futures or currencies as a source of "passive income", but I have changed my mind based on the writings of Van Tharp.

His book Trade Your Way to Financial Freedom is a classic. I cannot recommend it highly enough for all the wisdom it contains - not only about buying and selling stocks & futures, but also about how to live a better and more mindful life.I am a big fan of Van Tharp's philosophy and I highly recommend all his books.

Winning the Money Game

This key excerpt from the book resonated with me and made me write this page:

"...most people lose the money game because they follow somebody else's rules for how to win the game. They believe that the person with the most money or the most toys wins the game. Perhaps you win when you become a millionaire or a billionaire. But if that's the case, most people lose.

My solution to this is to adopt new rules. Financial freedom occurs when your passive income (income that comes in when your money works for you) is greater than your monthly expenses. Thus, if you need $5,000 per month to live on, you become financially free when your passive income is greater than $5,000 per month. It's that easy, and anyone with enough desire and commitment can do it...

In this book, I want to focus more on trading as a method of developing passive income. If you can generate enough income through trading or investing to meet your monthly expenses, and if the process requires only a few hours of your time each day, then I'm willing to call that income "passive income". And through this process you can be financially free."

Consistency Matters

Van adds an important qualifying footnote here: "This must be a consistent return for you to count it as passive income. For example, if you are up 30 percent one month, 20 percent the next, down 25 percent the next, down 15 percent the next, and up 60 percent the next, I'd be reluctant to count any of it as passive income because it is not consistent and you cannot rely upon it."

and continues...

"Although you may have to spend several years learning the business of trading and developing a business plan and systems that fit your plan, once that is complete, you could be financially free by my definition. I've seen many people do it, and if you have the commitment and the desire to work on yourself as the key ingredient in your success, then you can do it too."

TraderInterviews.com co-founder Tim Bourquin has written a great article called 5 Uncommon Rules of Wealthy Traders. There is a lot of wisdom in that article. I plan to improve my own system following these rules as I head towards financial freedom.