How to treat trading as a business Pt 1
9 October 2019
4 min read
The promise of profits, the ability to work from home at your pace of choice, the freedom to take time off as you please, and the recognition of managing to win at something that a lot of people could not — who does not want to be a successful trader? Despite the attractiveness of the lifestyle and the enthusiasm of those that approach it, the majority flop. They flop, blame the system, the robots, market makers, brokers and never want to look at a chart again.
Rarely do they look at the person that flopped when placing blame. So, you want to learn an entire profession and make a living off it, with you running the entire operation? Sounds a lot like starting a business!
You’ve read a ton of trading books and are ready to get serious. What’s next?
What do a business and trading have in common?
Setting up a business is exactly what every new trader is doing. Yes, it’s ambitious and yes it will take a lot of work. A new business and a new trader have the same goal: becoming consistently profitable. The guy opening a bakery is not counting on selling a ton of bread one day and then “eh, we’ll see…” He needs a business model where he can do a manageable amount of work for a somewhat stable profit in the foreseeable future. It could be the low barrier to entry, but most traders just skip the preparatory work unlike new business owners.
Fresh entrepreneurs apply for licenses, look for the perfect team, the ideal location to be the setting of their success, construct detailed budgets and business plans, plan for their inventory, read books on leading companies, and tend to be confident that they are an industry expert that has something unique to offer to consumers. Trading on the other hand is solitary. All it takes is the set up of a few accounts and your money can already be converted into something that feels slightly less real, that you trade. In the absence of hoops to jump though no wonder many dive into trading without much forethought, even when they are risking high amounts.
Some are smarter than that. Some are ready to be real entrepreneurs. If you are reading this far, chances are you are willing to try for real success. Lets breakdown what all successful businesses and traders have in common.
The trading plan to win
The very first thing any business puts together is a business plan where the strategy on how profits will be made is described in detail. A living document, that often gets revisited. Traders should engage in a similar exercise to prevent impulsive decisions. It all starts with writing out your trading system.
Every action taken based on that system is written down in a journal. You can of course make changes to the system based on backtesting, experience and applied optimizations. You will then end up with an improved system. That system gets traded, all is logged in a journal, changes are made to the system and finally the system is changed again. You backtest it, trade it and optimize it again. It is a cycle that never stops, and you become a better trader with each cycle.
Your feelings have nothing to do with it
As the CEO of a new company you base your decisions on facts and function in line with rules. You don’t just not show up in the office one day because you don’t feel like it. Or lower everyone’s paycheck this month because you’re bored. Losing traders allow themselves to trade out of boredom even when their system does not warrant it. They rush into trades, panic sell or cannot embrace losses.
Rest assured, you will experience plenty of fear, pride or greed and that’s completely fine, trading is considered stressful for a reason — it triggers all of them and more. Emotions are precisely why you have your system or business plan in place. It is a clear-cut map for when you should act and how. Follow it, keep polishing that system till its reliability is tried and true, and you have found your edge. The same way the CEO knows what the company needs to do this quarter and whims have no influence on that course.
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