Mar 5, 2012 | Volume 30, Issue 7
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The Winning Approach: Treating Your Trading As The Business It Is
by Brian McAboy

If you’re in this to win, as you should be, the most central truth you must recognize is that self-directed trading is indeed a real business. In this article, we’ll take a look at how treating your trading as the business it is gives you numerous practical and psychological advantages. We’ll also look at two primary critical errors traders ... Continue Reading Below

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... make that puts them on the path to indefinite struggle and eventual ruin.

As businesses and investment pursuits go, there are many qualities that make trading a great business. Compared to other businesses, the advantages of trading include: relatively low startup capital, no physical building or equipment aside from a computer, none of the headaches of dealing with employees, customers or even competitors (in the traditional sense), plus many other benefits.

This age-old trading wisdom of “treat your trading as a business” is often misunderstood or neglected, as evidenced by the incredible failure rate among traders. Adopting the perspective of being the owner of a startup business makes life much easier in making a success of the endeavor. Also the rewards are substantial and you realize many benefits while avoiding much disappointment, frustration and heartache. Unfortunately, it takes numerous financial beatings and humbling losses for most traders get around to this, provided that is, that they survive long enough to do so.

For most traders, their troubles begin at the very onset of their trading careers.

Because trading does not require a facility, staff, customers and other elements like the complex operations they normally consider a real business, it is quite common for new traders to just jump in with live trading thinking that if they can just start making some money with it, everything else will fall into place. Either that or they just aren’t considering the challenges of making those consistent, reliable profits over time.

Trading is often viewed simply as a way to make some money, not a real business, because of the over-simplified initial presentation of trading, and the lack of substantial considerations. One of the discoveries quickly made though is that making money consistently isn’t nearly as easy as it seems.

An immediate psychological benefit of mentally approaching your trading as a business it that it provides an entirely different look and feel. Many traders view trading as their future and for some, it even becomes much of their identity. When it is your business though, you remain detached to a degree because it is an activity in which you participate. It stays separated from you, as a business that you own, thus you keep your identity whole. The ‘business’ approach to trading provides much needed separation and detachment.

Secondly, building a long-term business inherently means organizing and systemizing the whole activity of trading, with an eye on the future. This requires thinking the matter through including goals and the related resources and the activities by which the goals will be achieved. Your operation will only become organized to a very limited degree if you have the ‘just make some money now’ view of trading. Everyone wants consistent profits, but really, how can you expect consistent and reliable profits from an operation that never gets properly organized? An operation that is planned out and thoughtfully organized provides security and relieves pressure and stress, plus it helps you stay realistic and keep a healthy perspective.

Another huge benefit is that you avoid significant opportunity cost. Every month that goes by that a trader continues to trade for little or no profit represents an opportunity cost because their time has been spent and investment capital tied up when it could have been generating a return elsewhere. If the month produced no profits nor did it realize any progress toward profitability for the operation, then the opportunity cost becomes personal at that point as well because that time spent unproductively on trading could at least have been spent with family or on personal interests.

The first primary critical error is failing to create a business plan.

The lack of a business plan is the most common denominator among failed traders and failed businesses in general. The business plan is your best assurance of success within a reasonable time period. Compressing the time to profitability is probably the greatest advantage to treating your trading as a business. All the while that you are getting your business up and running, it is using up both time and money. The longer it takes, the more it costs, and startup capital commonly gets exhausted before the business can sustain itself. When approached realistically from the proper viewpoint that trading is a real business, this causes you to properly plan your business, thinking through most matters that otherwise only get addressed as costly errors are made.

Go to any bank, angel investor, or venture capitalist, and tell them that you have a great idea to make money. Then, tell them that you have no business plan. They will tell you to go away, without giving you any money or even the time of day – because they’ve learned over decades that without a business plan, your odds of success become about 10%. They also know that even if you do eventually succeed, your time to profitability will probably be unacceptably long for them to get their money back.

A business plan also helps you make sure that your investment capital in the business is used wisely by providing financial controls and direction for the business. This is necessary for any successful and reliable business. By having a working plan in place, you will avoid the many detours and wastes of time and resources that can too easily occur without it. How many traders do you know that have tried several different markets or at least different systems, yet still are not making the money they want?

The second critical primary error is failing to recognize that trading is a skilled profession.

Successful business in any industry means recognizing the need for the necessary skills, and trading is no different in this regard. Too many people get busy trading without first focusing on the skills necessary to be a proficient trader. Many live in denial of this requirement, letting the desire to make money lead them to the erroneous conclusion that all they need is ‘a system’ and the will power to try to stick to it, and all will be fine.

But when the trader / business owner chooses to acquire and develop the right skills, they then are truly playing to win, so to speak. Rather than ask “How can I make money?” the business-smart trader seeks skills, proficiency and understanding through training from professionals that have the needed skill sets.

Since trading centers around the trading system, the daily guide for finding and executing profitable trades, it only makes sense to ensure at least a moderate level of skill at the selection, evaluation, development and optimization of trading systems. These are the skills needed simply to function as a self-sufficient and competent trader, and thus operating from a position of confidence. Without the skills and know-how, you are forced into a position of simply following the work of someone else, and this creates the situation where confidence is not well-founded in the first place, but worse than that is easily shaken with a few losing trades.

When a trader lacks confidence, this is when doubts, fears and poor judgment interfere with daily trading and result in costly mistakes. It also usually results in stress which is also very counterproductive regarding decision-making and performance. Without proficiency in these areas, the trader is dependent on the expertise of others, which inhibits solid and consistent performance in executing the trading plan.

One aspect of trying to shortcut the matter by relying on systems created by others comes down to quality of the system itself, even if based on a decent strategy. Many systems lack one or more of the qualities needed for them to be easily followed, thus making it even more difficult to execute consistently. The only way to avoid this situation is to again, ensure that the trader has the know-how to effectively evaluate, analyze and fix a system if it lacks the level of quality to be depended upon.

In this article we’ve explored several tangible advantages of treating your trading as the business that it is. From the perspective of a business owner that seeks a reliable business and also from that of the trader that needs to be able to function efficiently and effectively, being professional and business-like puts the odds in your favor instead of against you. Treating your trading as a business is indeed the winning approach and has been proven out time and time again.

 

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About the Author

For over 6 years, Brian McAboy has been helping traders become successful and self-sufficient, providing training, coaching and resources that tap on his expertise as a “Success Engineer” from his Quality Assurance days.  His experience as a trader, Trading Coach, Business-Consultant and Certified Quality Engineer give you the practical edge to become a great trader and enjoy what trading offers.

If you’ve enjoyed this article, feel free to watch the video presentation “Trading As Your Business” which expands on the matter by going to this link,

http://insideouttrading.com/winning-approach/ 



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