Trading is very different from other businesses, but it is still a business at heart, and you need to run it like any other business and treat it as one. Most traders get off to a false start by thinking of trading as a gamble rather than a business that requires planning.
If you want to become a trader, this very important first step is to run your trading like a business and think of it as a whole.
Just like any other business, the way you, as a trader, make profits is by bringing in more revenue than your external costs. Also, like any other business, if your transaction costs are greater than your income, you will lose your funds and your transaction will be terminated.
The cost of doing business in the marketplace
lost deal
The cost of running your transaction is losing the transaction, but this is a normal phenomenon. You need to realize that this is the transaction cost you have to pay in the process of trading, so as to reduce the impact on your emotions. Think about it, when a restaurant needs to reorder food or pay employees, these are necessary because these are the daily operating costs.
So, as a trader, the biggest cost to your business is the losses you suffer from losing trades. Every trader, no matter how much profit he enters, also has losses in it. You can't avoid it, try to accept it and learn how to handle it properly.
Another smaller cost associated with trading is brokerage spreads, or commissions. This is a transaction cost for your ongoing trades, and you need to remember that you will need to pay the broker a spread or commission each time you enter a trade. It's a real cost, you have to think about it.
set up a trading place
The next biggest trading cost you will have as a trader is setting up your exchange. It varies greatly from trader to trader, but at least a good laptop and a computer desk and chair are required. Some traders may opt for multi-monitor computer setups and expensive computer desks and chairs, which can obviously get very expensive. However, this is not a necessary condition for trade to be favorable. All you really need is a good laptop and internet connection.
Good News About Transaction Costs
Ok, so now you know, there really aren't that many costs associated with your transaction. This means that there is no risk that you can actually take a loss on any one trade, which is accomplished by using a stop loss. Knowing how to properly prevent stop losses will also be an important factor in managing risk and maximizing rewards. A properly prevented stop loss can be the difference between a losing trade and a winning trade in many cases.
Now, the bad news about transaction costs. If you don't manage them and dispose of them properly then they will grow very fast. In fact, if you do not manage your risk properly when trading, you can definitely lose all your trading capital. So you have to remind yourself in real time that these costs can be effectively managed and controlled, but it is up to you to decide.
So, now that you know the main costs of your trading business, there may be others now, but these are the biggest for most traders. Your goal is to make sure you make enough money from winning trades (revenue) to cover all of your fees, and then some of them so that you make a profit.
How to Make Your Trading Business Profitable
Now, now is the time to learn how to run a trading business with a profit, not a loss. As mentioned earlier, a trading business is profitable when revenue (amount of winning trades) offsets trading costs (losses, office setup, etc.).
The question then becomes, what can you do to ensure that your transaction revenue far exceeds your transaction costs? Here's an overview:
1. Focus on risk reward ratio – On every trade, you need to determine if the risk reward potential is worth the trade, you need to make sure you have at least a 2R reward or higher, and make sure your stop loss is correct.
2. Don’t trade a lot – you don’t need high frequency trading to make money. You need to focus on learning to trade correctly, taking high quality/high probability trades. This is what I said in my article about trading alligators, trading like a sniper.
3. Pay more attention to money management, rather than through money management, I mean manage and control the risk of each trade, and make sure that it is possible to obtain 2R or higher returns, and also on trade exits. Most traders focus too much on investing and wasting time on things like trading indicators when they should be focusing more on money management.
Make sure you know how to read price action correctly. Finally, if you don't understand how to read price charts, you won't get very far in the markets. Fundamental to any successful trading business is understanding price dynamics and how to read and trade from pure price action.
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