Alright, what I would like to discuss today is what I like to call the ‘Income Pyramid’ – a very important concept to understand for all of you who want to make consistent money from the markets.
It’s time to build our trading “house”, which happens to be in the shape of a pyramid.
When you build a house, what is the most important floor of the building? The first floor with the family room and kitchen? The second floor with the bedrooms?
How about the FOUNDATION?
Without a doubt that’s the most important floor of the house; without a solid foundation, every floor above it will show cracks. It’s a nightmare that never ends.... and the same thing applies to your trading. You must build a solid foundation for your trading business that is solid as a rock, and is available month after month. Once you set the foundation, you can build on top of it. And this is exactly where our “Income Pyramid” comes in.
will set up the “floors” of this Income Pyramid in this manner, using the appropriate trading strategy at each level. The shape of the pyramid represents the amount of capital that we will bring to bear with each strategy as well.
Each of the floors will have the following income-earning strategies in play:
Foundation: Non-directional index strategies like High Probability and Low Probability Iron Condors, being played on an index chart, can offer consistent monthly income and are limited risk/limited reward.
First Level: Semi-directional index strategies like Covered Puts/Covered Calls can be played during favorable trends using index charts, also offering consistent monthly income with slightly higher risks & higher potential rewards.
Second Level: Directional index strategies like Stock or Futures swing trades and/or directional and weekly spread strategies offer occasional, higher-reward opportunities when high probability setups are present.
Third Level: Directional equity stock strategies like Stocks or Long Options offer occasional, high-reward opportunities when high probability setups are present.
When you put all of these strategies together, you have a vertically-integrated set of trading strategies that all work together harmoniously to provide consistent streams of income without much regard to what the underlying Market is doing; this is why I call it the Income Pyramid.
Something else that the Pyramid represents is your progression as a trader; once you master each level, you will “earn the right” to move to the next level and attain higher potential returns. With this in mind, notice how trading individual Stocks is at the very top of the Pyramid, using the smallest amount of capital.
Isn’t this exactly the opposite of what you have been doing to this point?
It was for me when I first started trading, and it’s the same for 99% of traders that I come across. It requires you to break your current parameter of thinking that the way that you must trade
One of the COOLEST things about this Income Pyramid is that the first three levels can be played using ONE STOCK CHART, like the Nifty ,Bank nifty or the Reliance Industry. I cannot possibly be an expert in 6,000 individual Stocks but I can get to know one really, really well.
And you can, too
Options are the “power tools” of the trading world. They can be used by professionals to create precise trades with limited risk, generating consistent income. They can also be used by amateurs(beginners) who will hurt themselves if they don’t know all of the required skills.
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