How To Treat Trading Like a Business (because it is one)

Psychology will always be a reason why traders fail.

Thinking of trading like a business forces you to approach the markets from a probabilistic perspective – the perspective traders lack today.

If you don’t have a probabilistic outlook on trading, it may not be your fault entirely.

The “trading gurus” online aren’t honest about trading. They’ll sell you a lifestyle and tell you it’s possible by taking their course or joining their signal group.

We all know how that ends up.

To make things worse, you don’t learn anything about trading through gurus.

Every profitable trader can agree that trading is just like running a business.

Now, we’ll give you 4 simple steps so you can treat trading like a business too. Here they are…

Step 1: Have a defined strategy.

You’ll be surprised how many people trade without having a strategy (I hope you aren’t one of them 👀).

The business equivalent of trading without a strategy is buying stock of products suggested by YouTubers and selling them at prices that’d make you feel content.

You’d be setting yourself up for failure.

Every profitable business knows what they’re selling, its audience, its marketing strategy, and so on. In trading, you need to know your strategy and the markets you apply it to.

Without a trading plan, the brokers have a plan for you.

Step 2: Expect losses at the start.

Every new business idea is an experiment.

You won’t know if it works or not until it’s tried and tested. When starting a new business, you’ll likely lose more than you make. Over time, your results will reveal what’s working and then you can use that information to optimise your business for profit.

Traders should also see their new strategies as experiments. In other words, be comfortable losing at the start. You have to go through stress testing your strategy, and then refining them until you get profitable results.

Step 3: Know your cost of doing business.

Every business owner knows how much it costs to keep their business running. Traders should too – they can do this by interpreting losses as operating costs of their strategy.

In business and trading, accurate expectations are valuable because they allow you to forecast. So, if you’re risking £100 a trade, and have a 60% win-rate strategy, you need to have a minimum of £800 to keep your trading system running.

But before you determine the operating costs of your trading strategy, you need to have a verifiable win rate.

Why? A strategy that hasn’t been backtested or forward tested is susceptible to ambiguous results. So, you may expect to incur £800 in losses after completing a series of trades, but end up with £1,300 in losses instead.

If a business has an ambiguous monthly operating cost, they’re at risk of being out of business. It can take just a few months for the business to go under. It’s the same for trading too. 

Following a strategy where your losses aren’t consistent can deplete your trading capital in the long run.

Step 4: Know your averages.

Averages are extremely essential in business. If you run an e-commerce site, the most efficient way to forecast projections is by using stats like the average cart value. 

Determining next month’s profit from the total profits accrued last month is subjective – profits are likely to change as customers are independent variables that aren’t consistent with their purchases.

Fun Fact: This is why online stores like Amazon have a subscribe and save option. It allows them to solidify their long-term projections and guarantee profit next month.

Anyway, back to trading…

Knowing your average profit (average winning trade – average losing trade) is essential.

You can get a near-accurate figure of long-term gains just by multiplying your average profit by the number of trades you intend to do.

Business is math. Trading is math.

People tend to overcomplicate things due to emotions.

Successful trading comes down to the maths making sense long term.

There’s no way around it.

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