Treating Trading Like a Business
One of the fastest ways to become a profitable trader is to treat your trading like a business. Yes, like a business. Now, a lot of people do not understand this, nor do a lot of people incorporate this into their trading.
I see so many traders just wake up, open an account, buy, sell, just take on trades without any proper structure, without any proper plan, and that ultimately leads them nowhere. And in this article, what I ultimately wanna talk about is I wanna talk about how do we treat trading like a business and what are the steps to do so?
Now, before diving into how to treat trading like a business or what the steps are, the first thing I wanna put together is how trading and a business are relatively very similar. So imagine you open up a restaurant, and in that restaurant business, you're going to be focused on what are you selling, what food will you be serving, what the location will be, how much investment you're gonna make, and you're just gonna start looking at these different data points and have this proper structure to give yourself the highest level of success.
So this is the same thing that we want to do in our trading, and if you're not doing this in your trading, you will have a very low chance of being profitable or making it here in the long run. Now, there's three steps that we wanna focus on to make our trading be correlated as a business.
Creating a Trading Plan
Now, going on to number one, having a business plan. Now, what does this business plan or trading plan consist of? So let's start going over these questions that should be asked in your trading game plan or your business game plan, if you wanna call it, to give yourself the strong foundational aspect that you need to be a profitable trader.
Selecting the Markets You Will Trade
Let's start with the first one, the markets you will trade. So you want to understand what markets are you going to trade? Are you trading the crypto market? Are you trading the stock market? Are you trading futures?
Are you trading forex? Like what are you going to trade? Now, I see so many traders go and trade crypto, trade forex, trade stocks, trade options, trade futures, trade everything when they start out and I'm like, well, this is not the time for you to pick multiple markets, pick one market, become really good at it. So that's the first thing you want to structure your whole business around. What direction is your business going to go in? So pick a market and identify what market you want to trade.
And if this changes in the future, that is okay. But we want to create this business around one structure that we can build off now so we're not confused and nor are we all over the place.
Choosing the Assets You Will Trade
After you understand what market you want to trade, now you have to go into what assets you want to trade.
So if you're trading, let's say forex, what pairs you want to trade? If you're trading stocks, What type of stocks do you wanna trade? Do you wanna trade mid-cap stocks? Do you wanna trade blue-chip companies?
Do you wanna trade options of these stocks? Do you wanna trade the future markets? If you are trading futures markets, you wanna trade micro contracts. Like what type of contracts do you wanna trade?
Like these are things that you should have a foundational understanding of before you even begin to trade them. So if you don't even have a foundational understanding of any of these markets or any of these asset classes, then you need to learn that first before you even pick why.
Determining Your Initial Investment
How much are you planning to invest or trade with? This is a very big question you have to ask yourself, and everyone watching this will have different answers based on their financial situations, right?
Now I'm not saying if you're starting from scratch, you need to start with a lot of money. Start with something small just to get a feel of the market, just to get a feel of your business, right? Because you don't wanna start a business and expose yourself with the most amount of risk.
You wanna start a business, see what works, see what doesn't work, and then slowly start putting more money in. But that is a question you have to ask yourself that is applicable to your financial situation.
What is the amount that I'm gonna start with? And is that amount that I'm comfortable with starting with? So for example, if you are starting, and let's just say you are starting with $5,000, and that $5,000 is all the savings you have, I wouldn't recommend you put all that $5,000 in the market.
Why? Because a lot of your emotions are gonna start playing a role in positions you take, trades you take, and you're just gonna keep thinking about, "Oh my God, this money I can't lose". So that attachment to money will make it harder for you to take on trades.
So I would personally probably go with a lesser amount that I'm comfortable putting in the market, and I don't have that emotional connection with in terms of financial connection, right? And once you pick that number, you have to stay stuck on that number for the next six months and say, "you know what?
I'm starting with $2,000, I'm starting with $1,000, and I'm gonna stay consistent with this amount until my business starts seeing some consistent growth, and I start seeing some results, I will not look to add more money."
Implementing Risk Management
Which leaves me to the next point, after you have identified how much money you will be investing into the market, you want to understand how much will you be risking per trade. This is the main thing that is going to separate you guys from people or traders that blow their accounts, which is risk management.
How are you protecting your downside? And I'm really focused on this part because guys, if you really want to make it in this game long term and you want to survive, you have to have to have to protect your downside.
If you do not protect your downside, if you do not have a proper risk management plan, you will make it really difficult for yourself to make it in this game in the long run. Now in order to do that, once you identify how much money you are risking or how much money you're investing into the market, you want to try to work off the 1% or 2% rule.
So for example, if you are investing $1,000 into the market, The one and 2% rule essentially says that you will not risk more than 1% of your total account in a particular trade. So if you take a trade tomorrow and with $1,000, that 1% rule will allocate to about $10.
So any trade that you take, you are not allowed to lose more than $10 on that particular trade, especially when you're starting out. Now, obviously, once you get ahead in trading and you get more comfortable, you get more consistent, you can increase your risk aspect.
We're starting out, guys, just think about it. Why would you want to put out so much risk when you don't understand the market dynamics? You don't understand yourself. You don't understand what parts of your business are going to be good, what parts of your business are going to be bad.
So that is going to take some time. So once again, allocate a small percentage of risk and whatever their risk percentage is, keep it consistent because if you can maintain a small risk per trade and keep that consistent, you will still be here in six months.
You will still be here in a year or two years because you will make it easier for yourself to take losses over and over again because they will be so minimal. Because I see traders with a $1,000 account risking $500 a trade or risking $800 a trade and in one or two trades, they blow their account.
Developing Trading Strategies and Playbooks
Now, the most important part about your business plan is your strategies, your playbooks, your setups. What do your strategies look like? What does your playbook essentially look like? How are you going about the market?
Like what time frames are you trading under? Because you can't go and say, "well, I'm going to trade options in the stock market and I don't know what time frames I'm trading". For you to know what time frames you're focused on, you need to know what type of trader you are in terms of your strategies.
Are you scalping? Are you getting in and out of positions very quickly? Are you day trading where you're holding positions for a couple of minutes to maybe a couple of hours? Are you swing trading where you're holding positions for days and days or maybe weeks and weeks?
Or are you position trading? What type of trader are you? And within that understanding, what type of trader are you? goes into what type of strategy you will use to identify the timeframes you're focused on that will identify the methods and focus points that you are kind of, you know, paying attention to in the markets, are you trading off basic price action?
Are you using any indicators? Are you trading off order flow? What are you trading off? So all of this starts off from the top as mentioned. Once again, what type of trader you are, how you want to trade the markets, going into timeframes, going into strategies.
This whole concept is very important for you to incorporate into your trading plan. You can't wake up one day and say, "well, today I'm going to be a swing trader and the next day you're a scalper and then the next minute you're a day trader."
No, you want to try to focus on one way of trading, get really good at it. And once you get really good at it and you have strategies and set up surrounding it, it will make your life a lot easier because you'll know what's working and what's not working within a certain strategy.
So those are the main components that you guys have to have answers to if you want to have a solid trading business plan, right? You should have an answer to all of that. And by the way, if you have an answer today and that answer kind of changes in three months, that's okay.
The answer is not rock solid where it's set in stone. It will change and that once again is fine. But the idea is to have a framework to work off and build off. If you build that framework now, you'll make your life a lot more easier than in the future.
When you do make tweaks, there'll be small tweaks. You'll know what's working, what's not working, what areas you want to improve in and so on. But if you're just going out and you don't have any answers to these questions, you're going to be all over the place and you would have that structural framework or guidance to get to the real point of being profitable.
Tracking Your Trading Progress
Now we go on to point number two: Track your trading progress. If you open up a business tomorrow, you're focused on your P & L statements, you're focused on your balance sheet, you're focused on these metrics within your business.
You're paying attention to what parts of your business make the most money. What times your business makes the most money, what times your business doesn't make money or is slow in your business. What are the strengths in your business, what are the weaknesses in your business?
You're going to be focused on this. And the only way you can get this is by data, by getting your own data and putting it on paper. This is the same thing we want to do in our trading. And the best way to do that is by journaling and tracking your trades.
So I journal and track my trades every single day, every trade I take. I go into TradeZella and I upload my trades and I check. I recap my day, I recap my week. I go into every single individual trade and I get an idea of where I entered, where I exited.
And I kind of jot down my thought process of, okay, well, why did I buy this stock here? Why did I exit here? What setup was it? What playbook does it fall under? Did I make any mistakes? And then when I keep doing this and I keep a pattern of it, I can see multiple different stats about my trading.
I can see the best times I trade, the best days I trade, what are my best performing trades, worst performing trades, right? What periods or duration do I hold trades that do well and durations of trades that don't do well?
Under what market conditions, right? So I started getting this good understanding about my trading just by looking at my stats. And if I look at my stats, I start understanding that these are areas that I need to improve in and these are areas that I need to take a step back in and double down on.
And the only way I can do that is when I once again, track and journal my trades. So if you guys are not tracking or journaling your trades right now, I would recommend that you start today and create a structure to track, create a structure to understand your data because that's going to allow you to understand what's working and what's not working.
There is a link down below for TradeZella.com, which is a trading journal. So check that out if you guys want to check it out. And start journaling your trades today. And just guys, take trading seriously.
Like if you really want to make it in this profession, just please take it seriously and treat it like you care and you want to actually make it. Because the best businesses or best traders can go back into their data and they can tell you, "hey, on January 26th, this is how I traded, what I traded. On this month, this is what I did that worked or what didn't work. This is what my data has told me." Even in any business, they have all of these points because that's what they use to get better and better. So as a trader, why aren't you doing that?
Establishing a Process and Structure
Now I go on to my last point: have a process, have a structure, right? Where you are, once again, having internal meetings, if you wanna call it within yourself, which are called weekly recaps, which are monthly recaps or monthly meetings.
You can have daily meetings and daily recaps, right? That's one component of having the structure. The second component of having the structure is to have a time block zone within your calendar, as mentioned before, of when you're trading, when you're gonna have these meetings, meaning when are you gonna review your days, when are you gonna review your weeks, when are you gonna review your months, when are you gonna spend time on educating yourself?
Because once again, it's a business, 100%. But you need to spend time in education and learning consistently. And I'm not just talking about learning about the markets. I'm talking about learning about yourself too, because you're gonna make so many mistakes here on out.
Even me right now, 10 years in trading, I still make so many mistakes. And the only way I get better is by having these internal meetings within myself and identifying problems, going through my journal, going through mistakes, even when I have good trades, going through them and saying, okay, what did I do good here?
Did I actually do well or did I get lucky? And those internal meetings and structures and time blocking on a weekly basis keeps me accountable, it keeps me focused, and allows me to really treat this profession like a real, real profession as I should and allows me to treat it like a business.
And that's what we're trying to do here. So yeah, guys, this is something that I'm gonna do. something that's really worked for me. I wish I started trading trading like a business early on in my trading career.
I started a year and a half in and surprisingly a year and a half in is when my trading started seeing improvements. That's when I started making money. You know, prior to that in my first year and a half, if you ask me anything about the markets, I was shifting from different risk amounts, from different markets, different strategies and I had no foundation and that just kind of threw me all over the place.
Which is why I wanted to share with you guys and say, hey, let's save you time. Let's make your journey a lot more effective and quicker to getting to the financial end goal of trading and becoming profitable. And these are the things you guys, in my opinion, should be doing and I hope you start doing them now.
Engaging with Your Ideas and Conclusion
And if you found value from this article, I would love to hear some of your ideas of or game plans, trading game plans and business game plans that you have set for yourself. And if you do have that, comment that down below.
And once again, thank you so much for reading and I will see you guys on the next article.