Have you ever thought of treating forex trading as a business?
Okay, let me start with a simple question, how do you approach forex trading?
There are a lot of people out there that have a significant interest in investing and trading.
However, everyone has a different driving force towards what gets them going.
There are those people that want to make an ambitious amount of money the moment they start their endeavors in forex trading.
To them, it is more of a get rich quick affair.
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I am sorry to crush your hopes, but if that’s the mentality that you have, you will be in for a rude shock.
Just like any other business, you have to invest in varied aspects like time and money for you to make substantial amounts of profits in forex trading.
You have to take trading as a business. Invest time in reading and ensure you are practicing with charts for you to gain the desired proficiency hence end up making substantial profits.
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When You Treat Trading as a Business
You Need to Have Money
I will not lie to you or try to sugarcoat anything.
Like in any other business, you must have money to begin trading.
There are varied expenses that you will incur as you commence, like investing in a trading course or something.
What is most important, however, is having money to fund your trading account.
It makes no sense starting the trading business with no money as you will do nothing.
You could even get a business loan or dipping into what you have saved so as to fund your account to enhance trading as a business.
However, I do not encourage people to borrow money when they are starting out in forex trading.
The truth is, you do not have the needed experience when you are starting; hence the probability of losing that money is high.
I always tell my students that for every trade they are taking, they should only risk that amount of money that they are comfortable losing in case a trade does not go their way.
Why?
This way, your emotions will be in check hence having the ability to do proper analysis and efficient trade management as the trade continues.
As a result, invest the money that you generate from other income sources, but don’t take a loan to fund your trading account if you want to treat trading as a business and make it work.
You Can Trade From Home
As you start out in forex, trading from home is a good trading idea as it helps you to cut on other business costs such as office rent.
Forex trading is done on a broker’s platform; hence you do not need a physical presence.
All you need is a PC and internet connection.
I know! I know! What about all these “gurus” with 3-7 monitors mounted in their office? This is a question you are likely to ask.
Believe me, most of it is just for show. They just want to create that ambiance of professionalism so as to suck you in.
So long as you know what you are doing, you only need your PC. Keep it simple; DO NOT complicate things.
Trading from home will help you to build and develop your trading business without any pressure.
Just ensure that you choose a good forex broker as you commence your trading career.
Your Trade Setups Make up your Products and Services
Each business comprises of either physical or virtual products or services that are sold to gain profits.
Preferably, the business should have a good understanding of the products, where the product is from, the way it is built, the product benefits, and more.
The business should aim at being the leading expert in what it is offering.
As a trader, your trading strategies and trade setups are your trading products.
The trade setups are the set of regulations and triggers that enable you to trade profitably.
It does not matter if your setups comprise of pure price action, indicators, chart patterns, or a combination of either.
The important thing is for you to be good at whatever trading strategy that you are going to use. Try and get an edge.
You should ensure you know all the details like improving the odds, when the setup performs best, the markets and time to use, the market conditions that do not support it, the way you should set stops and pick targets, and so on.
Many traders are not consistent and are not close to perfecting their trading skills due to the aspect of changing their trading approach all the time.
It is obviously not possible for a business to grow when the owner changes what they sell each week.
Profitable traders are usually consistent in what they do. They find something that works for them and continue doing it year in year out while making adjustments or improvements here and there.
This is something you need to consider if you want to treat trading as a business.
Treat Losses as Costs, and they are Normal in Any Business
You must incur costs in every business as you must buy business materials, employ workers, build plants, and do some market and product research, and marketing.
The motivating factor in business is spending money so as to get more money in the form of profits.
When you employ a person with no skills, invest in expensive or unnecessary material, or spend money marketing to the wrong target audience, then the money used on these is not categorized as a cost of doing business.
In as much as losses are part of trading, there is a difference between good losses and stupid losses.
Losses are acceptable if you stick to your guidelines, and the reason many business people incur losses is because they lack a suitable approach or do not fully follow their rules.
Such losses are not considered to be part of trading and a trader’s trading business.
You should, therefore, ask yourself if the losses you incur are your fault, maybe because of breaking rules or if you properly-regarded your rules, but then the trade failed to work out.
This is why you should always have a trading plan as it will guide you on the trades to take and those that you should be ignoring.
In case you followed your trading plan and the trade did not go as planned, that okay as it comes as a learning lesson on what you need to adjust.
As a result, you need a trading journal to record varied aspects when you are entering a trade. You will use this when doing your post-analysis; hence you will have the ability to identify where you went wrong.
|
Acceptable Losses |
Stupid Losses |
| Incurred while following your rules | Breaking your rules |
| Accepting a loss | Widening the stop loss to cover a loss |
| Moving on | Moving stop to zero too soon |
| Using appropriate sizing | Risking too much |
| Setting a stop loss | Adding to a loser |
How to Succeed when Approaching Trading as a Business
Set Aside like one Year Living Expenses
If you want to treat trading as a business, you ought to enhance other aspects that you would when conducting business in other niches.
Do you start your business today expecting that it will start paying your expenses the next day? Definitely NO!
Then you should not approach forex trading with that mentality too.
As a trader, you expect to create profit every single month, but then there are times when a business makes no returns.
This can be due to unfavorable market conditions, because you are not prepared psychologically for the trade or that you are on a draw-down. It does not matter your predicament, but it is important to save for 12 months’ expenses or so to ensure you are able to cater for your living expenses as the business stabilizes.
You will feel at peace, knowing that you have taken care of all your bills and living expenses for the next one year, not having to worry about how you will manage.
This is something that will make it possible to grow your trading business since you don’t have pressure.
As a result, you will take the time to attain proper trading education hence reduce the aspect of going in the market blindly.
The probability of taking irrational trades or trading with emotions is also reduced.
Trade with an Edge
You may have the best trading knowledge, trading psychology, or very strict risk management, but if you fail to have an edge in the market, you will not have the ability to remain profitable in the long run.
It is easy to simply get something that is already functional and then take it up. A trading strategy that has already been backtested to help you save time.
Also, read books on topics like this to understand how this works. Having understood the varied forex trading concepts, come up with your own trading plan so that you can find an edge in the markets.
Keep Growing your Capital
Business is about investing money so as to get money. This is the same thing with the trading business.
Imagine if you have a trading strategy that earns 20% each year. The strategy is good and has an edge in the market, however with low capital investment, you have to take risks like using a high lot size or overleveraging, which in turn ruins the edge that you had.
To avoid this, grow your capital even if it means getting a job and saving up. As I have said above, don’t take a loan to start forex trading as it brings a lot of pressure to you as a trader hence ruining your trading psychology.
Diversify your Risk
You can make profit in varying market conditions by trading various trading strategies. For instance, try following trends in trending markets and mean reversions in range markets. You could also diversify your risk beyond your trading business.
For example, you could have a job with fixed income, work on a part-time basis, or have a side business and more, so as to increase your earnings.
This is something you can also apply in the markets when you are treating trading as a business.
Keep Attaining the Desired Trading Education
In some sectors, learning basic fundamentals may work for you for a long period of time without the need to advance the business knowledge, but then this does not apply in trading.
In the trading market, strategies you learned like five years ago may not be practical in the market now. You might need to make adjustments from time to time.
Therefore, the best way to stay relevant in the trading business is by remaining a loyal student of the trading markets. This helps to make you a trading expert, and with this, you do not have to worry about what the market offers you.
You can achieve this by keenly watching the market, reading books, testing new market theories, and learning from fellow traders.
It is my hope that you have learned something on how to treat trading as a business and it will be helpful in your trading business endeavors.