Become Consistently Profitable — 5 Steps to Trading Like a Business
Anybody can trade. The barrier to entry for new traders today is lower than it has ever been.
Unfortunately, most people who try trading end up losing money.
Many of them end up concluding that trading is basically gambling, that depositing funds into an exchange is like throwing money into a slot machine. And for those people, that is probably true.
But it doesn’t have to be that way. There are some who study the markets and charts, learn how to trade, and eventually become consistently profitable.
Trade like a gambler, and the casino will always win in the end.
Trade like a businessperson, and your chances of becoming consistently profitable increase greatly.
In this article, we will go over seven steps you can take to transform your trading from an unpredictable game of chance to a consistently profitable business.
1. Perform a SWOT Analysis
Every business has its own unique Strengths, Weaknesses, Opportunities, and Threats. As a trader, you are the business, and should be analyzed the same way.
In order to make the best use of your unique abilities and circumstances, you need to first identify what they are.
What are your strengths? Do you have trading experience, coding skills, economics experience, impressive Googling skills, an ability to read people, mastery of multiple languages, infinite patience, or just a whole lot of free time?
What are some of your weaknesses? Do you have a day job and little time to trade? Are you a highly emotional person? Are you a disorganized person? Do you find it hard to give up control?
What opportunities do you have? What markets, trading platforms, or exchanges are available for you to trade on?
Can you identify any threats to your trading business? Do you have any worrying bills or debts that must be paid? Are there any tax regulations that could ruin you if you trade the wrong way? Is your health a concern at all?
2. Create a Plan
The next step after a SWOT analysis is to create a business plan.
In your case, you are planning a process for learning, creating, testing, and approving profitable trading strategies, executing them, and improving or removing strategies as needed.
Each strategy should at least include ways to spot a trade, a way to execute that trade, reasons to exit the trade, and should follow risk management principles to ensure the strategy stays profitable over time.
If you are still inexperienced, it is fine to start with a strategy that you have gotten from someone else. Work with that strategy, understand the reasons for entering and exiting a position, and the strengths or weaknesses of that strategy.
As you gain more experience with different strategies, you will be able to develop a trading strategy and style that is uniquely suited to your own goals and preferences.
You can also plan for any possible living or trading expenses you may have. Make sure you have enough buffer funds to pay for these without having to constantly worry about pulling funds out of your trading account. As you start to collect more profits, don’t forget to set some funds aside to make sure these expenses will be paid on time, so your trading business can continue to run smoothly.
3. Track and Collect Data
A good business tracks it sales and the performance of its products or services.
In the same way, you must also journal your trades in order to see how well each strategy performs. Only then will you be able to make rational, informed decisions based on real information.
Strategies that perform well over time can be used more frequently, or can be allocated more trading capital.
If a strategy is underperforming, you can use your data to try to understand why. Then you can decide to tweak it or throw it away entirely.
4. Think Long Term
Even the largest corporations can have unprofitable periods. Yet, CEOs don’t shut down their businesses when they have an underperforming day, month, or quarter. Instead, they look at their businesses, try to improve, and work towards making their companies profitable over time.
Every trader also has days and months where they are unprofitable. If this happens to you, know that it does not immediately mean you have no hope as a trader and need to start practicing your burger flipping skills.
Assuming you are practicing proper risk management, a single bad trade, day, week, month or quarter where you are just breaking even or slightly underperforming is nothing you cannot recover from.
If necessary, take a break to reset and reassess your trading strategies to find areas that might need improvement.
Stick with your trading plans and do not try to rush the process. It is important to be patient and let the trades come to you. Those who are impatient will likely start overtrading or taking unnecessary risk in order to get rich faster, but in reality will just get rekt faster.
5. Research and Development
Successful businesses must constantly grow and adapt in order to keep their advantage. Those who fail to grow will eventually find themselves irrelevant.
If you want to become and stay a successful trader, you will have to keep looking for ways to improve and stay relevant.
Educate yourself. Stay up to date on what’s happening, either in the charts or in the markets.
Just because a strategy worked last week, last month, or last year, does not mean that it will continue to work in the future. Keep reviewing your data regularly and be ready to make changes as necessary.
Spend some of your efforts researching new ways to automate any parts of your trading plan that you can. A good trader can always make more money, but even the best trader in the world cannot make more time. Set alerts, use limit orders, and try out third party tools and bots to help diversify or execute your trading strategies more efficiently. Free up your time so you can use it to gather more knowledge, take care of yourself, or simply enjoy your profits with friends and family.
Much of your trading success depends on your mindset.
Those who don’t take trading seriously will not put in the necessary time and effort to master it, and end up losing their money in the end.
Treat trading like a hobby, and it will remain your hobby.
Treat it like a business, and you will give yourself the best chance of becoming a consistently profitable trader.
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