What if you came across a business where you needed no qualifications to get into the business, start-up costs were very low, you do not need to find customers or products, you can work from home any time and for any hours you wish, and the potential profit is huge. Most people would be tempted.
Trading is just such a business. So many people get into trading. Most soon learn that it is very easy to trade. But to trade profitably – well that’s a very different story. Because there is a drawback to this business that many forget: the failure rate of new businesses in this sector is extraordinarily high. It’s probably in the region of 90 to 95% of people who start trading will fail, with most stopping within the first year.
Of course, most people don’t know that before they start. And so they see only the opportunities. Worse, because it’s so easy to get started they view it almost as a pastime, not as a business at all. As a result, they forget that you need to apply established business principles and thinking. These are required irrespective of your trading style, or what markets or instruments or timeframes you use.
Trading is too expensive to be your hobby and too insecure to be your job. If you treat trading as a past-time you will find it to be a very expensive hobby. But if you take it on as your job then there is high insecurity and no guarantee of reward, irrespective of what effort you put in. It is a business in which you are making an investment of time and money with no guarantee of a return, but no limit on the potential return either. Look at it this way irrespective of how much time you will put in. And like any other business you need good planning and sufficient working capital. Like most businesses you should not expect to earn profits from day 1. You will need to work hard to earn money.
Know that you will not be treated lightly just because you are a small business or a newcomer. From day 1 you are competing against the most experienced players. This is a double edged sword. You will never have a brand or a reputation to rely on, but neither do they. So you can play pretty much the same game as everyone else, right from day 1.
You must have a good plan. This plan needs to be not just a high level outline of your objectives but a detailed plan of how you will operate the business. If must be written down, but it should not be set in stone from day one. It will need to develop and grow over time while remaining consistent and true to what you set out to do. And it must be realistic and based on good foundations because you have to be able to implement it all the time. The plan must not be based on wishful thinking or emotions.
Have your funding in place before you start to invest. This is good business practice. But don’t use debt. Know how much you are willing and able to lose. That’s your trading fund.
Be willing to accept yourself as your own boss. You have no-one else. So you must be willing to monitor yourself, accept your mistakes and have the discipline to put things right. This is one of the most difficult things, but it is much the same for anyone starting out on their own in any business.
Capital protection is paramount. Profits will arise over time if you limit losses. But if you lose too much you will never have the opportunity to earn profits. Most people who start trading stop doing so within a few months. It’s not just that they are not earning good enough profits. It’s generally that they lose their trading fund. You must avoid this.
You need an exit strategy. Know when to take on risk but know also when to exit or back away. Overtrading is a danger as in any business, but you must also know how to get out of a trade, not just how to find an opportunity.
You are not your trades. If you were selling cars you would not identify your personality with the cars you sell. Entering and exiting trades is your business. It is not you. If a trade goes bad it does not diminish you. You simply got it wrong, just like every other trader does. Learn why it went wrong – if you can – accept that you made a mistake, learn from your mistake, and don’t make that mistake again.
Trading is your business, it is not your life. Have a life. If you have a bad day trading then that is just what it is. It’s no more than that. The same applies if you have a good day. Tomorrow starts again with many opportunities to make it a winning day. In the interim, get on with your life. Trading is just a business to earn you money. Never look for it to be any more than that. There are far more enjoyable ways to spend leisure time.