Why You Should Treat Trading as a Business, Not a Hobby

It really is as simple as this: Those who are most successful in the markets treat trading as a business. Not a job or a hobby; a full- or part-time business.

So you might ask ‘Why not do it just for fun?’. Most traders start out on the wrong path right out of the gate by treating their trading like a trip to the casino rather than a business. Treating trading as a hobby often means no real commitment to learning is made and, as a result, trading can be very expensive. And trading as a job can become frustrating as there is no regular paycheck (and no-one wants to work for free!).

If you want to succeed as a trader, the very very first step is viewing your trading as a business. Although it’s quite different from regular businesses, it still incurs expenses, losses, taxes, uncertainty, stress and risk and, as a trader, you are essentially a small business owner. For your business to become a success, you must think of it and run it like one – a business requires structure and planning, so first do your research and strategize to maximize your business’ potential, remembering there are real costs associated with it. Just as with any other business, to make profit as a trader you must bring in more revenue than your outgoing costs. And of course, if your costs are larger than your revenue, you’ll lose money and ultimately go out of business.

What are the biggest costs of doing business in the market?

• Losing trades
The biggest costs of running a trading business are those losing trades and every trader on Earth, no matter how experienced, has them. Yes, that’s right, losing trades are and should be thought of as the main cost of running a trading business. It is critical you view them this way, because it helps you to become less emotionally influenced when you do lose. Try and think of it like this: a store owner doesn’t get upset or angry when he has to re-order stock or pay employees, because he knows those things are just the day-to-day costs of doing business. Sadly you cannot avoid losing trades, so just accept that you will have to deal with the costs and rather than try to avoid them, learn how to deal with them properly.

• Broker commissions or spreads
Another cost associated with trading, is that of broker spreads or commissions. This will be an ongoing cost for you and it’s best to remember that every time you enter a trade, you are paying a spread or commission to your broker. This is a real cost and you should think of it as such. Those who trade frequently, like day traders, have much higher costs related to spreads or commissions than swing traders do.

• Set up a trading office
Another cost you will incur as a trader is setting up your trading office. Now, this cost can vary greatly from trader to trader, but at the very least, you will need a good laptop and a decent Internet connection. Of course, for comfort, a computer desk and chair are generally required, and some traders may opt for a multi-monitor set-up. However, this is not necessary to trade profitably.

• The cost of learning to trade
Instead of going it alone with research and self-teaching, you may decide to hire a trading mentor or subscribe to trading chat rooms or live signal services to expedite your learning. The cost of this can vary from professional trader to chat room to signal service.

Top Trading Tip: Bear in mind that if you choose to subscribe to trade rooms, subscribe with an open mind, don’t just follow the leader. Subscribe with the intention to extract as much information as you can, keep an open mind and learn as much as you possibly can from each person or room to which you subscribe. Keep a trading journal, and document and organize all of the knowledge you gain.

Trading costs, final thoughts:
The main thing to watch out for with trading costs is that if you do not manage them and contain them properly, they can grow out of hand, very, very quickly. In fact, if you don’t manage your risk properly as you trade, you can end up losing all your trading money fast: faster than in other businesses. As you can see from the above, you can contain your costs as a trader very easily and effectively. Containing these costs means managing your risk as you trade, and not risking more than you can truly afford to lose on any one trade. Achieve this by using stop losses and not trading live until you know your trading system well.

So now you know what your main costs of setting up and running your trading business are – and the great news is, there aren’t very many of them! There may be others as you go along, but these are the primary ones. Your goal is to make sure that you make enough money from your winning trades (revenue) to cover all your costs and then some, so that you make a profit.

So now I’m trading as a business, what’s next?

Once you’ve accepted trading as a business and understood some of the basic costs associated, it’s time to get started!

Firstly, ask yourself these questions to remind yourself what’s involved in day trading as a business:
• Am I driven to succeed?
• How do I handle losing?
• Do I have time to dedicate to learning the business of trading?
• Can I stick to a plan?
• Do I have my family’s support?
• Do I have money that I can afford to lose?
• How do I deal with stress?
• Do I have realistic expectations?

No-one becomes successful in trading overnight; it’s difficult, and takes a lot of time and effort. Because trading is so easy to get into, new traders may not realize there’s a very steep learning curve to negotiate, and the ease with which you can start trading (just open a trading account and hit the ‘buy’ button!) in no way implies that becoming a successful and profitable trader is easy. It is important to first study, study, study, learn and practice.

Here are some quick facts about trading:
• Research states that about 90% of day traders fail within the first year. Why? Because they start trading without having developed any type of solid trading system, or a logical business or trading plan. Any business entered into with such a lack of planning is likely to fail
• There is no way to completely eliminate risk in trading
• There is no trading system that wins 100% of the time
• You will always have losing trades, even if you are a rock star trader
• You need money to make money – it will take a long time to get rich with a small trading account. Also, being undercapitalized means you won’t be able to take on the risk and absorb the inevitable losses
• Successful independent traders can earn a comfortable income, but most do not become millionaires

Get lots of training underway; research, learn, research, learn!
Every occupation in the world requires training – you wouldn’t let an employee take on a role without giving them any training, would you? Likewise, the person who finds a website and begins trying his hand at trading the markets without any guidance may get lucky, or may find the funds he had are suddenly gone. It’s so much better to be patient and take the time to learn the skills needed to be a good trader, before you dive in. Those who invest their time and money in a reputable mentor or institution to learn the basics, will gain a greater education and foundation in trading.

Don’t be fooled, know the norm
There is also a lot of deception associated with learning the business of trading. Late-night infomercials and hundreds of websites would have you believe that trading is easy, and that anyone can generate a huge and consistent income from the financial markets, with little or no effort. While there may be the rare case where a trader manages to make a huge amount of money in a short time, that’s not the norm. For most people, trading involves a lot of hard work before becoming successful.

As a business, trading requires constant research, evaluation and discipline. There are no guarantees in the trading business, and you could work a 40-hour week and end up losing money. Anyone considering trading should make sure they have both the personality and financial means to take on this type of business activity.

Creating your own trading system
Traders who start putting their money in the market too soon, or without a well-researched and crafted trading system and plan, often find themselves back at the beginning, but with a lot less trading capital. Successful day traders actually put the work in to put together a profitable system before going live with real capital. There is still risk, but it is mitigated, educated, calculated, and time-tested.

A solid trading system is a system a trader has crafted out, through time and experience, in the subconscious. If you don’t take the time to do this, then trading becomes more like guessing or gambling.

Here’s a brief run-down of the main things you need to focus on when creating your personalized trading system – as mentioned previously, a trading business runs at a profit when the revenue (money from winning trades) is off-setting the costs (losses, office setup, etc):
• It must protect your capital: Focus on risk-to-reward ratio; on every trade you take, you need to decide if the risk reward potential is enough to make the trade worthwhile. Within the industry it is recommended that a 2R or greater reward is possible whilst making sure you have your stop-loss placed properly.

• Know where to correctly place stop-losses: A big factor in managing risk and understanding your trade targets, it will also help to maximize reward. A properly placed stop-loss can be the difference between a losing trade and a winning trade in many cases, so again, you must know your system well before trading in the live market.

• Don’t trade a lot, think quality not quantity: You don’t need to trade with high frequency to make money. You need to instead focus on learning to trade properly, on taking high-quality/high-probability trades. There are traders who do take in consistent profits, but they use systems based on extensive studies.

• Contain risk and manage your money: Manage and contain your risk per trade, patiently wait and identify the right trade entry to ensure minimal risk (NTElite generally has 2-8 tick stops reducing our risk per each trade), and know the possibility of where a trade can go so you can assess exit points and not trade blind. Most traders waste time on things like trading indicators, when in reality they should be far more focused on risk and money management.

• Make sure you know how to read Price Action properly: It allows you to read the market it its purest form and of course successful traders understand how to read it – if you don’t understand how to read a price chart, you aren’t going to get very far!

At the end of the day…

…Business is hard! But if you treat trading like a business, you’re on the right tracks: take the time to study and learn before jumping in, make sure you have a strong foundation of understanding the markets, plus a solid trading system. The best things in life take time and training to trade well is worth the time invested.

If you’d like assistance, please peruse our list of trading businesses on https://ntrading.io to see what business is right for you to help you get started, or join NTrading Elite*, where Member Traders are invited to trade side-by-side with us in the live market on our mentorship program. You’ll learn to trade the most pure form of reading the market – Price Action – in a supportive learning community of seasoned traders, and gain an edge for successful and independent trading. No need to invest in any more indicators, trade rooms, or unnecessary products!

*NTrading Elite Mentorship Program focuses on helping traders become independently successful, by learning to correctly read Price Action.

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