Whether you are into foreign exchange trading or stock trading, it is always advised that you must treat trading as a business in order to be successful. It’s true that when you sit in front of your laptop and check all those price charts, it can be challenging to think of yourself as a businessman, but a professional business approach is precisely what you need to make money here.
Before you start trading
In this section, we are going to discuss some things to keep in mind before you start trading.
- Figure out your ‘why’ – If you want to be a successful trader, you need to find out your ‘why.’ Ask yourself why you want to start trading. Is it simply because you want to become rich? If that is the sole reason, then you must know that only 5% of the traders are actually profitable. So, there must be some solid reason behind you making this decision.
- Find out your trading edge – Trading edge is something that gives you an advantage over the others. Some typical trading edges include faster identification of trends, a better grasp of market structure, and efficient data analysis.
- What is your risk tolerance? – Another factor that you must figure out before stepping into the world of trading is your risk tolerance. It is your comfort level that often helps in determining the tolerance you have for risk. Remember, risk tolerance is more about understanding yourself and less about the market.
- How much time can you commit to trading? – It is crucial that you think about the number of hours you are ready to commit to trading on a weekly basis. Once you decide on that, you have to see whether you can fit that time into your schedule or not.
Aspects of trading business you should know
Once you decide that you are serious about starting your trading business, it is time to break down its anatomy and understand a few more important things in this respect.
- Trading losses should be counted as expenses – If you have decided to start trading, then facing losses is inevitable. Everyone has to go through it at some point or the other. But you need to learn from your losses and tweak your strategy accordingly to avoid making the same mistake again. At the same time, you also need to think of the losses as the cost of operating a business. This will also help you not go into a cycle of ‘revenge trading.’
- Learn to preserve your capital – Intelligent preservation of capital is a skill you need to acquire over the long run. It is also a part of your risk management strategy. It is advised that you don’t risk more than 1% of your total capital on each trade; this is also popularly known as the 1% rule. By following this rule, you can ensure that you always have money to trade another day instead of losing all your money in a single trade.
- Always have a trading plan – Last but not least, we cannot stress enough how important a trading plan is. It is basically a document that will help you figure out the path you are going to walk. Your entry and exit rules and your stop losses will be mentioned in this single document. It should also include steps you must take if the market decides to go in a different direction. Such a detailed document to hand will ensure that you do not panic irrespective of the market condition and always make the right decision.
Before ending this article, we would like to remind you that it is equally important to identify your weaknesses from time to time, and this is only possible when you review your past trades. Are you letting your emotions come in between? Are you facing difficulty with market sell-offs? It could be anything. Whatever it is, you need to identify it and work on a solution. You also need to note down any of the factors that trigger your weaknesses. Lastly, always have realistic expectations in mind regarding your business, and you will find yourself improving gradually by the day.
Photo credit: The feature image has been done by Anna Nekrashevich. The photo showing a man presenting trading results was taken by Tima Miroshnichenko. The picture with a woman working on a laptop was prepared by Karolina Grabowska.