How to Supplement Retirement Income with Order Flow Trading

At Jigsaw, we get people from all walks of life joining our community of traders. For some reason. there's two groups we attract in far greater number than any others. These are:

  • Young professionals 5-10 years into their careers, looking at another 30 years of doing the same thing and recoiling in horror.
  • Retirees, looking to supplement their retirement income.

Working with retirees in this industry is a concern, nobody wants to be involved with a  retiree that has whittled away their retirement fund with bad trading habits. Occasionally we'll be contacted by a retiree that is close to depleting their retirement account. It's a terrible situation to be in and it is heart-breaking but trading will make it worse. You simply don't make the right decisions if you really need to win. It's hard to stay detached.

On the other hand, a lot of retirees we talk to don't really need the money. It's more of a challenge. Something that stimulates the mind now that work isn't there. This is the best position to be in - but as long as you don't need the money right now, you are more likely to make good decisions when it matters.

Many retirees I meet that are new to trading have concerns that it's for younger people, that they won't be able to learn it at their age. I see it as a matter of size and risk. I do think that swinging 1000 lot positions on Crude Oil Futures is for the younger, braver, fearless trader. But there's no reason to think you can't find your niche in trading as long as you take a pragmatic approach. And of course, we all know the "old bull, young bull" story (which I can't repeat here as my kids read this blog). The fact that most retirees I meet take a slow and steady approach to learning to trade does give them an edge.

Trading for income isn't about finding the next hot stock, it's about applying techniques over and over again with the same money to create an additional stream of income. You are getting a return on your time and capital. You keep the capital employed low this way, so you aren't ever going 'all in' with your retirement fund.

In other words - a trader looking for income doesn't want to risk $50,000 on a single stock and sit on it for 6 months to a year. Instead, they risk a few hundred dollars on short term futures trades and hold them for a few minutes or a few hours. This way they can have multiple low-risk trades through the day and never have a huge amount at risk. They make the money work for them over and over again, spreading the risk across multiple trades.

That isn't to say it's going to be easy. But there are things you can do to improve your chances of success. Things you might not have thought about.

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  1. Focus on the things that move the markets. Here's the edge of experience. If you are retired now, you have lived through the .com bubble, periods of easy money followed by periods of  high interest rates, the Global financial crisis, Black Monday. You've seen stock markets crash and then appear to be heading for the moon. Being aware of the news and it's knock-on effect on the markets helps you understand the short term 'knee-jerk' reactions to major news you can piggy-back. The markets aren't always news-driven but when they are many traders have their best days.
  2. Trade Futures. While tales of stocks like GameStop are entertaining, it does highlight some issues with the stock market in general. One of the toughest  daily tasks for the short term stock trader is figuring out which stocks will be "in play" that day. Things like upgrades/downgrades, company news, earnings announcements, insider buying - it's a long list of items that can bring activity to a stock. Even then, you need to get to trade that stock before the move is over and that often the move happens in the "pre-market". It's a exhausting. With Futures, it's all about the big picture - oil, overall stock market, currencies, grains, metals, meats - things that are really in play more days than they aren't. A handful of markets will keep you in trades for life and you'll get to know your chosen markets and how they behave. I can't say you'll be friends but you will be acquainted. 
  3. Treat it like everything else you've learned. You know how there's a thousand diets out there that promise you can lose weight without the pain of eating a little less and exercising a little more? Well, trading is just like that. It's a job for a lot of people and you can't learn it overnight, the professionals certainly didn't. So steer clear of people offering overnight success. You've been around enough to know that if it sounds too good to be true, it probably is. 
  4. Use Order Flow to make good trading decisions. Order Flow Analysis is a technique used extensively by professional traders. It's also used by those HFT firms that RobinHood sells their order flow to. Charts have their place in trading but professional day traders use order flow extensively. Watching the flow of orders, understanding where other traders are positioned, understanding how strong a move is. It's this dimension that helps you really get to grips with what's going on behind those charts and puts you ahead of those focused only on charts.
  5. Review. - Perhaps the most important aspect. To improve at trading, you need to 'take stock' when it's not in the heat of the moment. That means after a session, going over what you did well and what you did not so well. Did you miss any opportunities, did you hold on to something too long because you thought the market would turn around, did you get in because you thought you were missing out? All common faults that can be ironed out IF you take time to do a short review at the end of each session.

Trading is all about "slow down and hurry up". I've met younger traders in such a mad rush to succeed that they found themselves spending 10-15 years getting nowhere with 'get rich quick' trading schemes. Find an approach you like, that is used in the professional world and make it your own with practice.

After all - the markets aren't going anywhere and you'll have a lot more fun seeing steady improvement instead of spinning the wheels for years going nowhere on "fad diets".


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