Saturday, October 29, 2016

Trading as a Business


Trading the markets is exciting and promising. However, the results are not encouraging for quite a few, in fact most of the traders. Most traders, go through a few cycles of profit and many cycles of losses. Most brokers complain of losing clients due to these losses, as traders are forced to quit due to accumulated losses. Losing traders, try to find problems with either their trading platforms or their tools of analysis or the volatility in the markets, the problems go into a long list. If that is the case, then "Why trade at all?" becomes the most important question to be raised.

Having decided to go ahead with making a career in trading, you need to visualize yourself as running a business. Here, you will be your own "Boss, Staff, and Customer".

As with any business, one requires to plan it out. Once planned, the business needs to be started and executed. And then, finally, the running business has to be set on a growth path.

So clearly four distinct stages in a trader's life cycle are involved here, and you need to be aware of which stage you are in. It is also important to know whether one is really graduated enough to move on to the next higher stage. Without this knowledge, there would be dangerous pitfalls, which can take you back to square one. That is a lot of money and time wasted. So a careful understanding and getting clarity on this matter becomes critical. 

Once you identify the stage in which you are, you become aware of what are your next milestones in the progress of your trading life cycle. Based on these milestones, you need to prepare yourself for the journey towards these milestones by taking small but progressive steps, which ensure that you are on the right path. 

Before proceeding ahead, take a step back and ask yourself if you are honest with your judgement of the stage that you are in. Because the "Dangers of overstepping" are so treacherous, they can dislodge you out of trading and can permanently hurt your finances.

As a novice trader or as a trader who is not yet prepared to risk real money, but is intent on preparing himself for trading with real money at a later stage, you need to do the "Ground work in the planning stage". This ground work, once well done and validated, will give you a clearer picture of your inputs, your risk and what you can expect and by when from this business of trading. 

As a start-up trader, you would have gained the confidence of your trading platform, capital requirements, tools of analysis, sources of information, etc. You would have also done a lot of practice trading or paper trading by now. And you are now ready to step into the real world of trading, risking real money and ready to encounter your first real trade. 

This is where you will encounter the psychological hurdles in real trading, once real money starts to get involved. The "Solutions to psychological hiccups in trading", will guide you towards gaining control over your thought process and help you in staying calm and cool while entering, staying in and exiting any trade. 

In the start-up stage, you may need to tweak your long term trading plan a little, as you gain the much needed experience and vision to foresee minor issues with your plan. Do them with utmost care and do ensure that major goals of this plan are not shifted. In this stage, your primary goal is to decide and overcome the minimum number of consecutive successful trades. All your energy should be concentrated on this primary goal.

Once past these two stages, your trading comes to the execution stage, where your aim is to keep the ship steady. You need to repeat the cycles of successful trading over and over again, so as to ensure that everything falls in place automatically while in front of the terminal, your confidence in trading increases enormously, and makes you ready for the exponential growth that you are looking forward to.

In the growth stage, you are required to multiply your trade size at regular intervals. This brings a psychological issue of its own. The same thing that you have been doing for months, suddenly becomes difficult, just because the size of the trade has doubled or tripled now. Here you will need to "Fight the problem of plenty".   

Once through all these stages, you are really on top of the world and only sky is the limit for you. You just need to keep on doing the same repeated boring trade every time it crops up, and adhere strictly to the rules of the game as you would have defined already by now. This is the time to relish and enjoy the fruits of all the hard work that you have put in. This is the karma or the holy grail that you set out to look for in the first instance.

Happy Trading !!!

Nilesh Deshpande


  1. my special weakness is to hit break even points whenever i am in a good position. pure psychological problem !

    1. Can you elaborate with details or example please? That is the only way I can be of some help. You may email me the details if you feel so.

  2. Very nice article! It aptly covers the key stages of a trader.