Many traders recognise the positive nature of the theoretical philosophy of treating your trading as you would a business, and yet the majority are unsure about what this may mean in practical terms and fail to move beyond the “hobby trader” in their trading activity.
Recognising the potential wisdom of a “trading business approach”, this article attempts to differentiate between these business and hobby approaches through looking at eight key attributes.
The aim has been to offer a checklist for the reader to:
We have organised the thinking in a table for ease of use. This is of course not an exhaustive list and offers overview information rather than major detail, but should be sufficient to encourage individual thinking of where you are. So, your eight attributes are as follows:
|Attribute||Trading as a business||Trading as a hobby|
|Level of commitment||Significant planning and follow through for trading activity. Recognises the need to work hard at the front end to obtain sustainable results||Likes the “idea” of trading, believes that can succeed with minimal effort|
|Trading plan||Comprehensive, specific statements relating to entry, exit, position sizing, strategy outlines and IS dynamic and IS used.||May have some entry indictors and loose exit guidance, ambiguous statements that do not facilitate consistency and measurement.|
|Measurement and testing||Knows key trading numbers and journals trades. Review system in place which involves action planning to revise trading plan based on evidence.||Focus on limited trade information often restricted to P/L of individual trades. Changes to trading plan often based on a whim or the next new indicator. No study of decision making.|
|Time management||Has a clear plan for all aspects of trading activity. Optimises the limited time for trading based on lifestyle and objectives||No time planning evident. Often uses time inefficiently or may have a distorted trading/life balance.|
|Learning approach||Develops and implements a trading development plan based on identifying and filling gaps in knowledge/skills that may most impact on results.||No systemised approach to learning. May attend webinars/seminars without follow through. Unaware of/ignores gaps in knowledge/skills and often trades what others trade.|
|System changes||Based on evidence gained from measurement. Has the information to compare and adjust indictor perimeters and add new criteria for entry/exit.||Based on a whim or the hope that a new indictor (usually entry only) may produce better results without rigour in forward testing.|
|Purpose||Has a clear purpose for trading based on creating additional lifestyle choices and views trading as a potential vehicle to get there.||Purpose is to profit without obvious reason beyond making money. May like to trade as it “feels good” to be a trader.|
|Discipline||Religiously follows a plan for the majority of time as recognises that this is the ONLY way to determine whether a system works or needs adjustment.||Fails to execute according to plan. May more commonly miss entries/optimum exit points or enter/exit earlier than plan states.|
So, assuming you may have a desire towards the trading as a business idea, your mission should be clear. Take the information in this article and make a judgement as to what you could work on next.
The articles are from GO Markets analysts based on their independent analysis. Views expressed are of their own and of a ‘general’ nature. Advice (if any) are not based on the reader’s personal objectives, financial situation or needs. Readers should, therefore, consider how appropriate the advice (if any) is to their objectives, financial situation and needs, before acting on the advice.