Do You Treat Your Trading Like A Business?
Published by Jay Davies in Trading Articles
The foreign exchange market is the world's largest and most liquid financial market, turning over something in the vicinity of 5 trillion dollars a day! There are thousands of participants involved in this market, whether they be commercial companies, central banks, investment firms, hedge funds or small retail traders. Regardless of who these participants are, we can safely say that all of them have the same goal, and that is to make money.
What would you say sets apart a successful trader from one that doesn't make any money in the market? Do you think someone could be a profitable trader if they entered the market on a whim, without any forethought whatsoever as to what their goals were and how they would go about achieving them each day? Of course not! Trading is a business like any other, and if you want to have a successful and profitable trading business then you need to treat it as such from the moment you open your computer to the moment you walk away.
FORMULATE A BUSINESS PLAN
I personally do not know of any successful businesses that do not have a well thought out and detailed business plan. A business plan for traders like you and I, is like a road map or guide that outlines our goals as a trader and shows in detail exactly how we are going to achieve them. At the end of the day there's really no way around it, a solid business plan equals profit, so make sure that you sit down and formulate one. So what are some things that you should include in your business plan? Consider these 3 things:
CAPITAL. Any new business needs startup capital to get the ball rolling, the last thing you want to do however is use money that you can't afford to lose or that you will have to tap into in a short period of time to cover your living expenses. Sure, once your trading business if firmly established, you may want to regularly draw on your profits to pay yourself a wage, but if you really can't afford to have that money sitting in your trading account to begin with, then it's not going to bode well for your trading. You'll find yourself losing money because of being too emotionally invested in the outcome of your trades. Decide upon a startup amount of capital that you can realistically set aside to commence your trading with.
DAILY ROUTINE. If you are currently an employee of an organisation, then no doubt you have a routine set in place that you abide by every time you go to work. This established routine helps you to achieve certain goals that your employer expects to be met. As a trader you too should establish a detailed daily routine that you stick to in a methodical manner. Some of the key tasks in my daily routine are as follows:
- On platform launch, review any open trades and make needed adjustments.
- Consider the price action that has occurred over night during the New York session on the 40 different currency pairs that I trade.
- Check an economic calendar for any large impact news events that may cause higher than normal volatility and price spikes prior to placing an order in the market.
- Fill out my trading journal if a trade has been initiated.
For anyone desiring to be a successful trader, a daily routine is essential. It will help you to focus on the task at hand, achieve your goals and prevent you from making mistakes that could hinder your progress.
PERIODIC EVALUATIONS. A famous quote says: "What gets measured gets improved." A lot of businesses conduct yearly evaluations of their employees achievements and the company's overall success. This is how businesses find ways to improve for the following year. If you want to improve as a trader then your business plan should include periodic reviews. Have a look at your past trades that you've recorded in your trading journal so that you can get a clear picture of what you did well and where you can improve. This doesn't have to be a yearly review, in fact I recommend that you evaluate your trades on a monthly basis which will help you to firmly establish good trading habits and quickly snuff out those that are detrimental to your overall success. Ask yourself questions such as: Did I repeat any mistakes I've made in the past? How did I improve compared to last month? What can I do to become an even better trader?
By treating your trading as a business right from the outset and having a solid business plan in place, that includes things like a detailed daily routine and periodic evaluations, you will find that your skills as a trader will rapidly improve and you'll be well on your way to making it your primary profession if that is your goal.