To succeed as a self-employed trader, you need two very distinct skill-sets:
First, as a self-employed business owner.
Second, as a professional trader.
Both skills work in unison, one cannot be without the other.
As a self-employed trading-business owner, you need to:
1. Develop a concept which aims to satisfy a market inefficiency and make money work for you.
2. Have to test that idea and see how it performs over time.
3. Hold an inventory, i.e., your current positions. You have to buy them for less than what you intend to sell them for.
4. Manage your employees — your current positions can also be seen as your employees. You have to keep the ones that are working well and fire the ones that aren’t.
5. Take insurance. Your business must have insurance to manage risk because losses will occur. It is not a matter of if; it is a matter of when. Therefore, stop-losses, hedges, and position sizing are your insurance against big losses in your trading business.
6. Deploy your capital strategically, attempting to buy things at a lower price than what you intend to sell them at. When and where possible, your goal is also to diversify what you buy so that your risks are uncorrelated and dispersed.
7. Conduct your business where there are ample buyers and sellers so that you don’t get stuck with positions (inventories) that no one wants.
8. Actively preserve your capital. If you lose that, you are out of business. Therefore, you have to make sure that you do not go “all in” on any perceived opportunity.
9. Work towards the expansion of your business. Firstly, this can mean trading more vehicles, perhaps trying new strategies, and/ or increasing the size of your trades. The only caveat is that you can only do that after you’ve become consistently profitable.
Secondly, the markets, unfortunately, won’t accommodate you all the time, so it is useful to find other ways of generating income so as to smooth your revenue curve. Courses, coaching, mentoring, books… all these things are alternative ways of generating income for your trading business.
If you can’t build it on paper, how do you expect to build it in the real world?
Approaching trading with an abstract idea or vague concept of what you should be doing doesn’t work! And this is the all-too-common thing people do. So it is essential that you take a different route.
Most of the above steps have to be figured out on paper prior to starting your trading business through a process called trading plan development.
This is a critical aspect of trading!
We all desire security, a reliable source of income, and the capacity to generate wealth, but how can one expect consistent results from any business that never got properly organized in the first place?
This is the primary reason why venture capitalists will not even consider even the best business ideas if the person presenting them doesn’t have a well-defined business plan.
The underlying assumption is that if you can’t build it on paper, how do you expect to build it in the real world?
For this same reason, developing a trading plan is an absolute must for any aspiring trader. It is an essential stepping stone from which any other achievements in the market is possible.