How Trading Should be Run Like a Business
Whether you’ve heard it before or not, trading should be treated like a business. After all, you are starting out with some capital and devising a plan to make money off that money, hopefully enough that you can live off. Trading isn’t easy, but neither is running a business, which is why most business and trader start-ups fail. Here are several ideas to help get your trading business off the ground.
Embrace Risk
This is extremely hard, and almost paradoxical. No one starts trading to lose, yet each trader must fully embrace losing in order to effectively handle it. When a trader is able to fully accept losses those losses don’t affect future decisions, and don’t cause a deviation from the trading plan.
If you owned a store would you close your doors (stop trading for a while), or stay open all day (“revenge trade” or over-trade) every time a customer complained? No, you set how you will operate and you stick to it. Pissing someone off is the risk you run when you offer a service, but as long as most people are happy and keep coming back (like wins and profits) you keep doing what you are doing, despite the odd bad experience.
Most traders don’t understand that, and it is why they fail. Losses force them to trade differently than they planned; and with no plan there isn’t likely to be success.
If there is an emotional charge when you lose, you haven’t fully accepted losing.
The Plan
Most traders start out trading their own money. You are giving yourself permission to trade that capital. Instead of doing this, think of yourself as two people–you ‘the trader’ and you ‘the banker’ (who has the money). As a trader it is your job to come up with a plan to convince the banker to give you money.
This is going to have to be a very good and thorough plan for trading! Otherwise, why would the banker give you the money? When you start out trading, you aren’t proven yet. Your only worth is the plan you have; if you can’t convince your personal banker to give you the money based on your plan alone, then don’t trade.
If you wanted to start a business with no plan, and needed a loan, the bank would politely ask you to leave. Your banker personality should tell your trader personality to do the same thing if he comes looking for money to trade, with no plan.
Enough Capital
It is very easy to think we are different than others and that we will somehow succeed quicker than everyone else…but everyone else is thinking that too and it isn’t working for them either. Being undercapitalized is a major problem for traders. It takes time to gain consistency and get control of emotions while trading. Profits don’t come overnight.
The ABSOLUTE MINIMUM amount of capital you need to trade is 100 x risk level of your trades. In other words, if you need to risk $10 per trade then the minimum capital you need is $1000. If you need to risk $20, your minimum capital is $2000.
Certain markets will require much more than this, such as stocks and futures; so once you have the minimum capital required to trade (if you trade those markets), this rule still applies. By using this method it takes 100 losers (with no winners) to wipe you out. Since you are bound to win some trades, this gives you the time to fine tune your strategy and find your winning ways.
Another way to think of it is that you can’t risk more than 1% of your capital on a trade. So if you have a larger account, say $80,000, you can’t risk more than $800 on a trade.
Whether your account is small or large, this rule applies.
Return-Profits
As a trader you don’t need return-customers, you need return-profits. You need a strategy that gives you a profitable edge over time. At the end of the month overall profits need to be larger than overall losses.
This strategy needs to be outlined in your plan, but if you are struggling to find a good strategy, just look to your charts…everything you need to know is there.
Ask yourself: Who turns the market? Big traders. Do big traders make money? Yes, that’s how they became big traders.
So all you need to do is find a way to join the big traders at market turns. In my articles I have outlined many different ways to do this. Click on my name along the right hand side of the page to see all the articles I have written, and hopefully one will provide you with a strategy you like. You can also follow me on Twitter https://twitter.com/corymitc for trade ideas and more articles.
Final Word
Come to trading prepared. Realize that trading includes both losses and profits, and you have to accept both. If there is an emotional charge when you lose, you haven’t fully accepted losing. Have a plan; think like a banker. Based on your plan would a banker give you money to trade? If those check out, make sure you have enough capital. You can only risk 1% of your capital per trade, or 100 x times your minimum “bet”. If you can’t afford this, wait till you can. Then you need a strategy. That is actually the easiest part, there are loads of strategies available, but you need all the things above in order to make that strategy really work for you.