First off, let me state that I have a sincere desire to see people reach a level of success in their trading endeavors. For some, this will be to achieve the level of consistent trading performance that will allow them to transition into trading as a primary source of income. For some others, it will be reaching a point where their trading has the kind of returns that can provide them with additional income, while continuing to work in their current field. For still others, it will be achieving an understanding of the markets that will aid them in developing their long-term portfolio. And, for some, it will be in discovering that trading is not a suitable endeavor for them, and that to commit any significant amounts of capital or time, will only result in returns, and losses, that don’t meet their needs or expectations.
That is a simple reality. Trading is not a path that will meet everyone’s requirements for success in life. No one thing ever is. But, trading has the potential to help many people achieve their objectives if approached correctly, and with the dedication and effort needed for any significant path in life.
What is Trading?
What do I mean by trading? Well, let me first tell you what I believe that it is not:
1) It is not buying a ‘Magic System’ or ‘bot’ that will “let you make money while you sleep” or “take money out of the market at any time”. That is, at best, gambling. Or, at worst, self-delusion.
2) It is not a ‘Get rich quick’ formula. There have been people who have struck it ‘lucky’ in the markets. But, over time, most of those have given it all back, and more. As Seth Godin says, “it takes about six years of hard work to become an overnight success”. When the results of training and hard work kick in, it can produce a sudden, dramatic shift in a trader’s performance. The appearance of ‘Overnight’ success. But, that only comes after the long period of serious training.
3) It is not an ‘Easy’ way to make a living. While trading can develop into a simple and low-stress approach, it is no more ‘easy’ to arrive at that level of performance than it is to achieve proficiency in any other profitable skill or profession. Perseverance, dedication, and properly applied effort are key in any meaningful endeavor.
4) It is not an alternative to ‘working for a living’. Nope. Trading is business. It involves work. How much? That depends on the skills and abilities of the trader at that point in their path. For some, it is an 8-hour day, 5 days a week. For others, it can be 20 minutes a day. Like any business, it offers potential returns in line with the effort and effectiveness of the person managing that business. Trading doesn’t ‘give’ you anything. But, done well, it can help you to achieve many of the things that you want in life.
5) It is not an answer to the problems in your life. Ask any trader who has been in the business for any real amount of time, and they will tell you that the markets will always give you what you want. If what you have in your life is debt, overwork, unhappiness with your job, or a myriad of other issues, you will find that trading often produces those very same results in life after a time. Why? Because those issues are the ones that we bring with us to the business of trading. Trading doesn’t make them go away. If anything, it can amplify them. And, usually does. A good business doesn’t make a successful manager. But, a good manager can help to build a successful business.
6) It is not something that will reward a part-time dabbler with consistent success. Trading successfully, as a part-time business, is a very achievable goal. But, ‘part-time’ dedication to training results in ‘some-times’ performance. That doesn’t mean that you have to devote 8 hours a day to trading. But, it does mean that the more focused and consistent your efforts, the sooner you can achieve the kind of performance that will allow you to run a trading business for a second income. Be realistic. If you can only train for 2 hour a week, you are not going to be ready to trade with consistent success in 2 months. It’s possible, but I would likely fade that bet.
What I see as the basic elements of Trading as a business:
1) An understanding of yourself as a business owner. – What are your goals for the Business? – What assets do you bring to the endeavor? – What liabilities? – What is your true commitment level? What can you reasonably dedicate to the business without being detrimental to your current situation?
2) An understanding of the business – What is you business plan? 1 year, 2, 5 10? – What are your startup capital requirements? – What is your current level of expertise in this field? – What level of returns will meet your business plan?
3) An understanding of yourself as a trader – What is your current level of trading knowledge? Skill? – What is the style of trading at which you perform best? – What is the style of trading at which you perform worst? – What is the best risk model for your trading? – What is the current level of your market analysis skills? (Fundamental, Technical, Quantitative) – What are your weakest points as a Trader? Your strongest? – What are your weakest points as a market analyst? Your strongest?
4) An understanding of the tools of Trading – What order management platforms do you require? – What is your level of proficiency with those platforms? – What risk management tools do you use? – What is your level of proficiency in risk management? – What charting platforms do you require? – What is your level of proficiency with charting on those platforms? – What analysis tools do you require? (Fundamental, Technical, Quantitative) – What is your level of proficiency with those tools? – What style of trading (Trend following, Counter-trend, Scalping, Momentum, Breakout, etc.) is best suited to you? Least? – What time frames are best suited to you? Least? – What type of trade management is most comfortable for you? Least?
As you begin to build your trading business, the answers to these questions will help to shape the direction of your trading practices. It is just as deadly to your success to underestimate what you can reasonably commit to growing the business, as to overestimate the returns that your trading performance can produce in a consistent manner. Both will produce an exhaustion of capital, both financial and emotional, before reaching your goal.