By VIKRAM
Trading as a Business.
Advantages of starting your trading business from your home without any big investment…..
No Boss – Not answerable to anyone in your office…
No fixed timing – Work whenever you feel like…
No Meetings – No stressful boring meetings, presentations, sales analysis etc.
No office politics – No need to please anyone to get your promotion.
No Dead line – No weekly/monthly Target to achieve.
But what is takes to be successful in Trading Business?
There are hundreds and thousands of different businesses in the market.
And most businesses are divided as a high turnover business vs low turnover business.
A high turnover business usually have a small profit margin but they sell it very frequently and earn from the fast turnover of their inventory.
An example of a high turnover business is Super market like DMART.
On the other hand…
There are also businesses which has a low turnover but high-profit margin.
An example of a low turnover business is Mercedes Benz.
They don’t sell cars every minute like DMART super market, but whenever they sell, they make a HUGH profit.
But “How does this relate to your trading?” If you think about it, the concept is the same.
Are you a high-frequency(scalping trader) trader looking to capture a small move with big lot size (quantity) or are you a low-frequency trader who prefers to catch a big move(breakout trader) with small lot size?
I am the first one, I trade big, but capture small moves…..So I don’t get too many trades in a day, only 1 or 2 trades, but when I get it I try to make it large with Hugh quantity….so it depends on individual style.
First decide, whether you want to have a DMART kind of high turnover business or a low turnover business like Mercedes Benz.
Do you know the cost of doing business?
Every business has a cost or expenses in their business.
If you’re running a restaurant, you’ve got to pay…
- The salaries of your worker
- The rental of the unit
- Electricity bills
- Groceries
If you run a Transport business you need to,
- Buy Vehicles
- Pay EMIs for your vehicles
- Pay salary to Drivers
- Pay for Fuel/servicing etc
But what is the cost in Trading?
In Trading, your only investment is your Laptop/PC and Internet.
But, there’s still a cost — and it’s the cost of losing, that’s is STOP LOSS (SL)
Whether you have a 10 Laks account or a 1 Lak account, you’ll have losses here and there (I mean hitting your SL)
And that is all your cost or expenses in Trading as a Business.
How to protect yourself in “bad times”
If you look back, there’s always a major recession or slow down once in a while.
And as a business owner, it’s a huge mistake to assume that economy will always do well in your business.
If you’re a running a Fitness club, you might have seen your membership increasing every year (for the last 3 years).
But what happens when there’s a recession? people start loosing job….Have you considered it? How will it affect you?
So if you want to protect yourself, you must have enough savings to see through such difficult times.
Same with trading!
Market keeps changing from bullish to bearish to Range bound…
That’s why you must have enough savings to survive such difficult times.
If you want me to say it in figure, I recommend setting aside at least 24- 36 months of living expenses (apart from your trading capital).
How to diversify your risk
When you first start a business, you’ll start with one core of business…
For example:
TATA started with Automobiles.
Reliance started with Petroleum.
WIPRO started as a manufactures of vegetable and refined Oil company.
Now…
TATA sells automobiles to IT now….
Reliance in to almost every business now…..
WIPRO is a big IT giant now…..
Now the question is…
Why did these companies increase their product offering?
Simple…
They wanted to diversify their risk…
They don’t want to rely on just one product because what if there is a ban on the main product they are selling….
Now, what about trading? it’s the same!
As a trader, you have to diversify your risk into different markets and strategies.
Take me for an example…
When I started as a pattern Trader, I was looking for just 2-3 patterns every day, over the time I felt what if for next 1 or 2 weeks there is not a single patterns takes place from these 2-3 patterns? will I not trade for next 2 weeks?
Then I did research and developed few more patterns, and now I have almost 15 patterns in my arsenal, every day I see at least 1-2 patterns taking place from these 15 patterns, and I get at least 1 trading opportunity in a Day, most of the time…
Even with these 15 patterns still I keep looking for newer patterns every day…why?
Because I want to diversify my risk — so I can profit from the markets even if any of these 15 patterns doesn’t take place(contd…)
How to start trading as a business — 4 tips to increase your chance of success in Trading as a Business.
Now if you want to start your trading business, then here are 5 powerful tips to increase your chances of success.
1) You must have a Trading Edge
Edge means robust back tested Strategy, Because if you don’t have an Edge, you’ll never make money.
Now question is “So how to find an edge?”
Well, the easiest way is to find something that already worked for many years…
For example:
- Pattern Trading
- Trend Following
- Reversal Trading
- Scalping
Next, read books on these topics to understand the ins and outs of it, back test it on at least one year’s sample….
Now with the concepts you’ve learned, develop your own trading strategy, back test your strategy on last 1 year of historical chart, so you can find an edge in the markets.
2) Have a decent capital
You need money to make money in Trading business, here’s why…
Let’s say, you have a trading strategy that makes 60% a year.
With a 1 laks account, that’s 60,000/year.
With a 10 laks account, that’s 6 Laks /year.
With a 50 Laks account, that’s whopping 30 laks/year.
You might have a strategy with an edge, but with low capital, it’ll lead you to take unnecessary risks — that erodes your edge.
So, what’s the solution?
If you don’t enough capital, get a job and save up…
In my case, before taking up Trading as a full time profession, I had to work for almost 2 decades in a corporate job(which I never liked) to save good capital and set aside enough money as a living expenses.
3) Set aside 24-36 months of living expenses
Everyone wants to make consistent profits every month.
However, there are times when you may not make money…
May be market conditions aren’t favorable to you.
May be you’re going through bad phase…
Whatever the case is, you want to have at least 24-36 months of living expenses covered.
(OR if your spouse is working and have a full time job with steady income, who can take care of running the house until you are consistently profitable in Trading)
So, even if you’re at your worst trading performance, you can survive through it and not to worry whether you have enough savings to put food on the table.
Just Imagine…..How much more relieved you’ll feel when you know you’re covered for the next 12-24 months.
4) Diversify your risk, here’s how…
You can diversify your risk outside of your trading business.
For example…
- Have income from other sources… like starting a blog and earning income from ad sense.
- Starting a YouTube channel and monetizing it and earning from it.
- Work part-time for additional income…
Conclusion
Trading is like any other business.
You need to think like a Business man…not like a Gambler
You must make a profit, manage your cash flow, diversify your risk, and adapt to market conditions.
Profit and Losses are part of this Trading business…take your losses (SL) like expenses in your business.
Great article Bro
Very Effective and Energetic to make start .
You tube channel start krie sir
Sir , exellent and mindblowing article….
Will read it every month… Thanks for knowlegde u share with us..
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